Equity funding means raising money by selling company shares to investors, giving them ownership and profit rights instead of debt repayment.
Equity funding is a method of raising capital for a business by selling ownership shares (equity) to investors. In exchange for their investment, investors receive a stake in the company and become partial owners. Unlike debt financing, equity funding does not require repayment or interest; however, it involves dilution of ownership and sharing of profits through dividends or capital gains.
Equity funding is commonly used by startups and growing businesses that need funds for expansion, product development, or market entry. It can come from angel investors, venture capitalists, private equity firms, or through an Initial Public Offering (IPO).
This funding method is considered beneficial as it brings not just money but also strategic guidance, networking opportunities, and expertise from investors.
Example:
A startup raises ₹2 crore from a venture capital firm by selling 20% of its equity, making the VC a co-owner of the business.
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