Equity financing is raising funds by selling a portion of your business to investors. This article explores when, how much and why businesses choose equity financing.

What Is Equity Financing?
Can All Businesses Use Equity Financing?
How Much Of My Business Should I Sell?
Who Can I Turn To For Help?

What Is Equity Financing?

• Equity financing is raising funds by selling a portion of your business to investors. In exchange for the funds, they take a share in your business and profits.

• Equity financing or funding is a good option for start-ups who have little assets to put up as collateral for loans.

• Established businesses may also want to attract investors who can bring financial expertise or strategic partnerships to the table.

Can All Businesses Use Equity Financing?

• Equity funding is only suitable for partnerships and companies. Sole-proprietors are one-person businesses. The owner is the sole investor.

• Investors in a partnership can be silent or active partners. Silent partners contribute funds but do not take part in the running of the business.

• Investors in a company are known as shareholders. Shareholders are not involved in business operations.

How Much Of My Business Should I Sell?

• It all depends on how much money you need to raise. You should always establish clearly how much money you need before approaching investors.

• For instance, if your company's share capital is S$100,000 and each share is worth S$1, then you have 100,000 shares. If you need to raise S$20,000, you can sell 20,000 shares to an investor.

• If you're a start-up, you should also be prepared to raise several rounds of funding. Each round may require you to give up more and more of your shares. Start-ups sometimes have to give up as much as 50% of their business.

• A common concern of businesses is losing control of the company by selling away too many shares. It is a legitimate concern.

• Although shareholders do not interfere in the daily operations, they can exercise some control over the business.

• For instance, a company cannot increase their share capital unless at least 75% of the shareholders agree to it.

Who Can I Turn To For Help?

• Enterprise Development Centres (EDCs) provide consultancy and administrative services to businesses in Singapore.
  
  
• They are set up by associations and chambers of commerce with the support of SPRING Singapore.
  
  
• They can advise you on how to value your company when selling shares to investors.