9. Equity Funding
Equity new business funding deals in giving away a percentage of ownership of your business in return for funding, resources or skills. This typically takes place because numerous entrepreneurial businesses are almost perpetually cash-strapped, and can’t afford to invest in skills and resources, or they can’t find the funding they need to grow.
Equity doesn’t only deal in business start up funding but can also be a new partner who brings specialised skills to the business. “Equity funding means you don’t need to dedicate a certain amount of money every month – at a time when money is most needed in the business – to service interest and repayments,” explains Pavlo Phitides, CEO of Aurik, a business incubator.
Keep in mind: “Giving away equity is akin to giving away your future wealth. Entrepreneurs often don’t realise this. They are so desperate for the money now, that they don’t properly explore all alternative options,” says Phitides. “Before you rush into an equity deal, you need to make sure you’ve asked yourself some important questions.”
What you should look for in an equity partner
Phitides says these are the three things you’re looking for in an equity partner:
- An ongoing contribution in business funding, skills, resources and relationships
- Someone who buys into and supports your vision. While you will have to include them in decisions and listen to their advice, their involvement shouldn’t stifle or interfere with your passion
- Expect nothing to ever go according to plan and it may well take longer than expected for an investor to see returns from an entrepreneurial enterprise.