What are the various ways of raising equity for a company?

A company may raise funds from various investors during various stages of its growth cycle. Equity funds may be raised by sale of equity shares to individual angel investors, venture capital firms, private equity firms or strategic investors. We’ll explain each type of investor in detail:

  1. Angels – They are generally a first investor in a startup. Angel investors are private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth. Compared to venture capitalists, angels may also be more patient with entrepreneurs and open to providing smaller amounts for a longer time period. However, they do want to see an exit strategy at some point where they can pocket their profits. There are various angel investor networks operating in India and abroad, and they help to syndicate these funds through the registered individuals.
  2. Venture Capital Firms Venture capital firms or fundsinvest in early-stage companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the companies they support will become successful. Venture capital is private equity finance offered by investors to startups and small firms with the potential for explosive growth.
  3. Private Equity Firms A PE fund / firm pools the resources of various investors and then invests in companies typically at the growth stage against equity ownership in the companies. These funds typically will have an investment horizon of 5-7 years and would look to exit the company with good returns post the planned tenure.
  4. Strategic Investors It’s the scenario of a company investing in another company as it sees a strategic potential in any form. A strategic investor may be an international or domestic company investing in another company to expand and grow its business.

What is most suitable to your business requirements would depend on the stage of the company, the intent of raising capital, the potential to grow and many more factors. It’s important that a promoter identifies the capital that they are looking to raise and then decide whom to approach to ensure a successful equity fund raise.

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