EQUITY FINANCING

In the name of Allah, most gracious and merciful

Group Name The Researchers

Muhammad Ali (Group Leader)

Mudassir Ali

Shakeel Ahmed

Rana M. Usman

Muhammad Ali

What is Equity?

• Equity means…–A stock or any other security representing

an ownership interest.

– On a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity". 

What is Finance?

• In Short…– The science of the management of money and

other assets.

• Proper Definition…– A branch of economics concerned with

resource allocation resource management, acquisition and investment. Simply finance deals with matters related to money markets.

EQUITY FINANCE

Financing

Equity financing

Debt financing

02 Types as we know

Equity Financing…….

1. A method of financing in which a company issues shares of its stock and receives money in return. Depending on how you raise equity capital.

Equity Financing:company sells shares of ownership in the enterprise, called stock

Simply…………

The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. 

Equity Financing…(according to Investopedia)

1. The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. 

Sources of Equity Capital

Personal savings Friends and family

members Angels Partners Corporate venture

capital Venture capital

companies Public stock sale

• Private equity market – “Angel” Finance (informal market

for direct equity finance provided

by high net worth individuals.)

Sources of Equity Capital

Angel Point of View+ Knowledge of industry

+ Knowledge of technology

+ Knowledge of revenue model

+ Scalability of the project

+ First mover advantage

+ Timing of commercialization

+ Other investors

Entrepreneur Point of View+ Competences of Business Angels

+ Complement competences

+ Sharing experiences

+ Short due diligence

+ Longer investment horizons

Venture Capital

More Popular form of equity finance:

Every Kind of Business investment.

Company Investment

A venture capitalist is a very active financial intermediary, providing financing to relatively new and small businesses.VCs also participate in strategic planning and operational decisions.

Types of Venture Capital

Pvt. Venture Capital Investor Venture Cap. Individual Pvt. Investor Small Business Investment Corporation Specialized Small business Investment

Next: Mudasir Ali

Mudasir Ali

• Public Stock Sale: – Firms can also sell stock to

the public.– public float - raising money by issuing

securities (e.g. shares) to the public.

Unlike bondholders, • stockholders have no promised returns• stockholders are the owners of the firm• Since stockholders are in a risky position compared to

bondholders, they require a higher return on their investment.

Sources of Equity Capital

Seed Sub £1m

Start-up Prob pre profit Up to £5m

Expansion Roll out. First profits Less than £10m

Maturity Poss Exit – IPO/ Trade sale Up to £50m

Stagnate Rationalise – MBO/MBI Poss £100m+

Rejuvenate 2nd exit opportunity

Angels Traditional VC Traditional Private Equity

Funding types vs Stage of Growth

Market Value

Time

• Freedom from debt - unlike debt finance, you don't make repayments on investments. Not having the burden of debt can be a huge advantage, particularly for small start-up businesses.

• Business experience and contacts - as well as funds, investors often bring valuable experience, managerial or technical skills, contacts or networks, and credibility to the business.

• Follow-up funding - investors are often willing to provide additional funding as the business develops and grows.

Benefits of Equity Finance

Next: Shakeel

Adv. & Dis Adv. Of equity financing

Shakeel Ahmed

Rana M Usman

The main advantages of equity finance are:

•The funding is committed to your business and your intended projects

•You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.

•Outside investors expect the business to deliver value, helping you explore and execute growth ideas.

•The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.

•In common with you, investors have a vested interest in the business' success, ice its growth, profitability and increase in value.

Advantages…of equity fin:

Next: Usman

Rana M. Usman

Dis- Advantages…of equity fin:

The main Dis-advantages of equity finance are:

Raising equity finance is demanding, costly and time consuming, and may take management focus away from the core business activities.

Difficult to Manage the Business solely.

• Shared ownership - in return for investment funds, you will have to give up some control of your business. Investors not only share profits, they also have a say in how the business is run. While this has advantages, you need to think carefully about how much control you surrender.

• Personal relationships - accepting investment funds from family or friends can affect personal relationships if the business fails.

• Time and money - approaching investors and becoming investment-ready is demanding. It takes time and money. Your business may suffer if you have to spend a lot of time on investment strategies.

Dis- Advantages…of equity fin: