- Equity financing doesn’t require interest or principal payments, so the financial burden on the company is lower. Therefore, equity financing is perfect for companies in the pre-revenues stages. Also, this financing is the best alternative companies that have no assets to pledge as a collateral, such as technology companies that mainly have IP assets.
- Equity financing is a great way to bring on board someone whose help you either want or need.
- Equity investment usually shows a strong sign of trust from your investor’s side and this trust also signifies the investor will support the company over a longer period of time.
- Finally, since such an investor already has some stake in the company, the chances are high that when the company will need an additional investment, he will reach into his pocket in order to protect that investment.
- You are not the sole owner of the company anymore. As a result, some decisions are not yours to make. If you’re the person who started a business because you didn’t like being told what to do, this is an important consideration.
- It is usually harder to raise equity, because the investor is not protected (by, say, some collateral) in case the business fails. Thus, if you require a swift injection of capital, equity financing may not be for you.
One should understand the advantages and disadvantages, as well as the specific terms of equity financing before deciding to go forward. Such research can make all the difference between a successful and failing company.