What is Equity

Welcome to WatchMojo.com. In today's Business School tip, we take a look at an alternative form of financing equity. Equity is different from debt, in the sense that you are not borrowing money from anyone, be it an organization, or a person. When you raise money through equity, you are effectively selling a percentage of your company to an institution or a person. There are four forms of equity financing; the first one being Seed. Seed Investments can come from a person, as it can come from a venture capitalist. Seed takes place at a very early stage as the name implies when you only have an idea and a vision.

The second stage, is usually one VCs come in. This after the seed has already been invested, and there is some kind of track record that the company has demonstrated. The third stage is the bridge or mezzanine stage, where the company has clearly demonstrated its leadership in the marketplace, but is looking for additional funds to grow its business. Again, a VC could be the same one that invests at the bridge.

And the fourth form of financing equity wise, is actually in fact an exit strategy, and that is the IPO, or Initial Public Offering, where the original investors, and founders of the company exchange the percentage of their holdings for money to the greater public. We saw Google do this a couple of years ago, most of the successful companies around have had IPOs. We mentioned exit strategies. One exit strategy, whereby investor get to gain some liquidity and get some money, is an IPO. The second form, is simply when investors decide that they rather not do the IPO route, and simply sell their company to another one. We saw Skype do this recently when it sold to eBay.

But before you think about exit strategies, and IPOs you need to get your business off the ground, and your two choices of financing are debt or equity. This is being today's Business School tip on WatchMojo.com.


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