31 Aug Equity Offerings
Last week we discussed one of two different forms of financing: debt financing. Today we would like to discuss equity financing. Unlike debt, equity is a method used to spread the risk associated with a transaction across multiple investors. This is always beneficial for those transactions that end up not being as profitable as projections would have predicted. This is also a useful method for building relationships with other investors. If you have connections that you would like to say “thank you” for a investment opportunity they let you in on, then you can offer some equity and let them in on a transaction as well.
When a company is looking to sell its equity to the public through some sort of stock exchange, this is referred to as an IPO, which stands for Initial Public Offering. Often times a company, after making an IPO will still need additional capital down the road, so it will go to the public markets again with an follow on offering.
Like debt financing, equity offerings have their ups and downs. Some business owners do not what to let go of any equity, so they will to all they can, even if it means missing out on a few deals, just so they can hold onto the equity of their business. Other business owners see the extra potential they can achieve if they have the additional capital, so they are willing to let go of a portion of their equity and make others money so they can make themselves a little more wealthy as well.
By reading this article you are probably not wondering which method I am an advocate of. The main reason I am a fan of equity offerings is because it allows you to become responsible to investors who are at the same time similar to partners. They offer advise, council, and guidance to you and your business that you would not get from the bank. The bank just wants to make sure you are making your monthly payments.