Reference no: EM132345770

Equity Financing COLLAPSE

Young companies generally fund their assets with equity for two big reasons. The first is that there is not repayment obligation from equity financing versus debt financing. This gives the new company a little bit of wiggle room to grow, without having to make large payments in order to continue operations. They also do not have to factor in interest payments that would be required from taking out a loan. The second reason is it is an easy way to raisecapital in order to grow into their vision. New and young companies may be attracted to large venture capitalists who have experience with companies similar to their own. And believe that having investors own a piece of their company will help them grow into a success that has made the venture capitalists in the position they are in. I may have a great idea, but having someone with experience and a vested interest in my success can only help. The downside is that the equity investors will expect a large piece of the company that I may not be willing to share. If I know the company is going to expand and grow past my wildest dreams, these investors are getting a percentage of my company for pennies on the dollar.