Businesses need to raise funding for various reasons. Some want start up capital or cash to expand. Others need money to help them get over a difficult period so that they can stay afloat and succeed in the future. One common way of achieving these aims is to look for equity investment from venture capital firms. What is this kind of funding and is it worth considering?

How Does Equity Investment and Venture Capital Work?

Equity investment involves the injection of cash into a business. Unlike a business loan this money will not need to be paid back in the traditional sense by the repayment of capital and interest. Here, the investor takes an equity stake in the business as an alternative. So, for example, they will agree to give a certain amount of funding in return for a percentage stake in the company.

Where do Businesses go For Equity Financing?

Most businesses will get their equity investment from venture capitalists. This could be given by a venture capital firm or by an individual investor (often known as an “angel”). These companies/individuals specialise in funding businesses with the aim of making them grow so that they can see a return on their investment over a specific period of time. This is how they make their money.

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