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Raising equity capital is necessary when an entrepreneur wants to start his own business or an established company needs capital for new investments. Equity capital comes from investors, equity groups or firms that offer capital as a type of loan to another organization. When raising equity capital, individuals and companies need to have a plan, approach the right type of investor, provide a benefit to the investor and maintain a close relationship with the individual or company providing the equity capital. The approach for either the entrepreneur or an established firm will be slightly different during this process.
Entrepreneurs starting a new business will often write an extensive plan outlining the expected path of the company. Within this plan, the entrepreneur should include a detailed financial plan. The plan will list every expected expense for starting the company and the first few months of expenses. When visiting companies for the purpose of raising equity capital, entrepreneurs should demand a face-to-face meeting. This allows for direct questions and answers in order to achieve the goal of obtaining the funds.
Established companies will need a similar plan when raising equity capital. However, the plan will need to include information on the expected benefits of the plan and the financial history of the company. A strong financial history and information relating to the company’s ability to pay off loans and investments can help secure equity capital.
The right type of investor can make a big difference when entrepreneurs or companies engage in the process of raising equity capital. Certain types of investors will not engage in providing funds for start-up companies due to the associated risk. Entrepreneurs should eliminate these groups prior to setting up meetings. Established companies should look for investors who are familiar with certain industries or have a solid history of equity investing. Failing to select appropriate equity lenders can result in unfavorable terms for the duration of the investment.
Making concessions to equity investors is often necessary to secure the proper amount of funds for starting a business or beginning new projects. Individuals and companies seeking funds should ask what the most important goals are for the investor and determine how these will affect the investment process. During this process, borrowers should also seek to maintain close relationships with all investors offering funds. This process starts with the initial meeting and follows through to the end of the process when the investors receive all their funds back. Keeping a strong relationship will ensure the availability of future funds if the entrepreneur or company needs more funds.