The funding streams
Financing is defined as the cash value a company receives from investors and lenders. It consists of bonds (debt) and shares (equity). This funding fuels the growth and operation of the business, while investors and lenders expect a future return in the form of interest, dividends or an increase in the value of their capital.
Sources of finance
A wide variety of organisations specialising in different sectors (e.g. medical, property) or stages of development (e.g. start-ups) can raise capital. Some organisations focus on short-term funding, while others focus on long-term funding.
Start-up funding
For start-ups, capital funding takes into account the future profit potential, but also the high risk of failure. The purpose of raising capital is to realise the idea and bring the product to market.
Advantages include
Access to large amounts of capital: Equity funding overcomes the limitations of bank loans.
Ability to raise funds beyond the limits of the capital market: Investors bring valuable experience and a network of contacts.
Flexible repayment: Repayment is not as strict as with bank loans.
Business risk: Investors share some of the business risk, supporting growth.
The challenges
Funding agreements: Agreements can be time consuming and costly due to logistical and legal work.
Business strategy: Funders can influence the definition of business strategy.
The importance
Equity funding is an important tool for the development of start-ups and organisations, providing access to capital, guidance and flexibility.
Related information
Types of funding: venture capital, angel investment, crowdfunding, private equity.
Financials, business plan, management team, future prospects.
Regulatory framework: Varies by country and type of funding.
Conclusion
Equity finance is a valuable tool for stimulating economic growth and providing growth opportunities for start-ups and businesses. Understanding the benefits, challenges and different types of finance is essential to its successful use.
