Most people think about visiting the banker when the subject of financing a value-added business arises. But the banker won’t be interested in seeing you until you and others have put your own money into the venture. So you need to think about equity financing before you talk about debt financing.
Equity can come from a variety of sources for a value-added business venture. Usually you and the other members of your group are the first place to find equity. After all, if you are not willing to invest, why should anyone else. Family and friends often come next. This may be enough for a small business project. However, large projects often require a stock offering for potential investors. Once this level of sophistication is reached, you have a whole set of legal rules and regulations to follow. Angel investors and venture capital groups are another source.
For more information on this topic, see the links listed below of articles posted on related Web sites.
- Equity Capital – Business.gov – Equity capital, or financing, is money raised by a business in exchange for a share of ownership in the company.
- Insider Financing – CCH Business Owners Toolkit -- After considering their personal resources, the next place most entrepreneurs look for additional financing is to "insiders" like family, friends or business associates.
- What is a New Generation Cooperative? – Missouri Ag Innovation Center.
- Introduction to Investment Banking – MoreBusiness.com -- Investment bankers function as intermediaries in financial transactions. They are experienced in carrying out projects that, for most companies, take place very rarely but are critically important.
- Raising Money Through Equity Investments – NOLO Law for All -- Bringing investors into your business gets you more than just money, you get new co-owners too.
- How to Present Your Invention to Investors – Entrepreneur.com -- Having trouble finding investors? The way you sell your investment opportunity could be to blame.
- What to Know Before You Try to Raise Capital – Entrepreneur.com -- Don't meet with potential investors until you've taken these five important steps.
- What New Generations Officials Should Know about Their Members and Their Concerns – Quentin Burdick Center for Cooperatives, North Dakota State University -- Although farmers are familiar with cooperatives and their procedures, new generation cooperatives are unique to the way many farmers think about cooperatives.
- New Generation Cooperative Membership: How do Members Differ from Non-Members – Quentin Burdick Center for Cooperatives, North Dakota State University -- Direct equity investment in the cooperative and the related commodity delivery rights and obligations have made membership decision complex and have raised questions about the differences in attitudes, perceptions and characteristics between members and non-members.
- Questions and Answers about Ag Loan Officers and Farmer’s Investment in New Generation Cooperatives – North Dakota State University Extension – Profiles ag lenders who makes loans to farmers to invest in new generation cooperatives.
- New Generation Cooperatives – Who Invests? - Quentin Burdick Center for Cooperatives – Profiles of farmer investors in value-added enterprises.
Investors You Know
- Asking Friends and Family for Financing – Entrepreneur.com -- Heed our warnings before you play this dangerous game.
- Raising Money from Family and Friends – Entrepreneur.com -- Keep these points in mind before asking loved ones to invest in your new business.
- Using Personal Assets for Funding – Entrepreneur.com -- The realities of tapping into life insurance, CDs, mortgages, IRAs and 401(k)s.
Investors You Don't Know
- Distressed Private Equity: Spinning Hay into Gold – HBS Working Knowledge -- The marketplace for rebuilding troubled companies has perhaps never been as fertile as today, but competition in the distressed private equity field is increasing. What separates the winners from the losers?
- Keeping Tabs on Your Key Investors – HBS Working Knowledge -- A handful of shareholders can sway stock price dramatically,but just who are your key investors? And what sets them off? Hint: They don't necessarily own the most stock. Here's how to find out.
- New Challenges for Long-Term Investors – HBS Working Knowledge – Risk-reward. Rising interest rates. Stocks or bonds. The long-term investor has lots to ponder when setting asset allocation strategy.
- Writing a Credible Investment Thesis – HBS Working Knowledge -- Many companies are “terrifyingly unclear” to themselves and investors about why they are making an acquisition.
Working With Investors
- Attract Investors by Sharing the Risk– Entrepreneur.com -- Investors will be more willing to finance your business if you're also putting money into the venture.
- Finding Equity Investors – Entrepreneur.com -- Try this method for bringing equity investors to your business.
- Investing Your Own Money in Your Business – Entrepreneur.com -- Don't let outside investors think for a second that you're unwilling to take on some financial risk.
Equity for Founders
- Is Equity-Based Compensation a Good Thing? – HBS Working Knowledge -- It can be. But it’s not the best motivation tool in all situation.
- Dividing Equity between Founders and Investors – Entrepreneur.com -- How to figure out who gets what percentage of the business when investors come on board.
- What You Can Learn From Your Stock Price – HBS Working Knowledge -- Financial markets perform an important but unfamiliar role for managers. By analyzing market prices, managers can uncover information about the impact of competitors, suppliers and the economy on their own companies.
- Is a Share Buyback Right for You? – HBS Working Knowledge -- With the economy slowing and markets floundering, is the time ripe for buying back your company's shares? Maybe but buyer beware. A poorly executed or poorly reasoned buyback can come back to bite you hard.
- Base Capital Plan – Center for Cooperatives, University of California -- Implementing and using a base equity capital plan.