If you are unable to bootstrap your company and fund it from your personal resources, you need to attract angel investors to get your working capital. If you are a new business or a start-up seeking equity financing is the ideal solution for you.
Kavan Choksi– what is small business equity financing?
Kavan Choksi is an expert in the field of business, finance, cryptocurrencies, and investment. He is also passionate about jazz and the history of American music in the nation. According to him, when it comes to new businesses, equity financing unlocks investments for your business operations. If you have a sound business plan, a brilliant concept, and passionate leadership, your new business can actually become an attractive proposition for a lucrative investment.
According to data issued by the British Business Bank, in 2017, a record of £5.9bn was invested in small and new businesses 2017- this is more than 89% over the past years.
Understanding what equity financing is?
The process of equity financing is direct and straight forward. Here, investors purchase a stake in the business by giving you the funds in return for a share in the company ownership.
How does small business equity differ from a loan?
Unlike a business debt, equity financing does not mean paying back these funds to the investor, nor does the investor have a legal right to capital or interest repayments. They instead lay a bet that your new business will become highly lucrative with time. It is a long game for them, so years after their investments, they have the option to cash out from your business or sell their personal stake in it at a profit, or they can even reap their share of the profits of your company.
How does small business equity financing work?
The first step for you is to value the business, and here you need to take your time. You just cannot choose a figure from thin air and pray that everything will work out fine. Your investors want and would need to know how you arrived at the present value of the business. You need to present to them the weight as well as the current activity of the company, like income, future orders, and later minus the debts and liabilities to arrive at a specific value.
Value the business correctly
According to business expert Kavan Choksi, you also have the option to value the company on the basis of its growth and potential in the future, like forecasting its profits based on your growth.
It would help if you valued your business in a competitive manner to woo investors, but at the same time, it is crucial for you to strike the right chord and balance. Undervaluing your new business means you would be sacrificing a share that is too big for your business, and in case you overvalue it, investors will not be willing to invest in your company. This is something you must be aware of. It is prudent to consult skilled financial consultants to help you value your business before you invest investors for small business equity finance.