What is "Equity Financing" meaning?

Equity financing is a method of raising capital by selling shares of ownership in a company to investors, such as venture capitalists or the public via stock markets. It provides businesses with the funds needed for expansion without incurring debt. However, it dilutes the ownership percentage of existing shareholders.

Example

"The startup decided to pursue equity financing by offering shares to venture capitalists in exchange for funding to scale its operations internationally."

How is "Equity Financing" used in business?

In business, equity financing is often used by startups or growth companies that need substantial capital but may not have the assets to secure loans. It helps businesses grow without taking on debt but involves giving up a portion of ownership and control.

Pro Tip

Carefully consider the amount of equity to offer, as selling too much can result in losing control of decision-making, especially if the investors gain significant voting rights.

Related Terms

Debt Financing, Venture Capital, Stock Issuance, Shareholder Equity