What is Equity Financing for eCommerce Business Owners?

Equity Finance refers to the process by which business owners will sell shares of their company in order to finance other parts of their business. Equity financing can be obtained through angel investors, venture capitalists, initial public offerings (IPOs), crowdfunding, and/or corporate investors. Angel investors are individuals who invest their wealth in a small business. Venture capitalist firms invest corporate funds into small businesses. Initial public offering (IPO) is when a business offers public shares in order to fund their company through multiple public investors. Crowdfunding is sourcing investments through multiple inventors on a donation, reward, or investment basis. Corporate investors are private companies that invest in a small business in order to acquire control of the company.

Is Equity Financing a Loan?

Equity financing is not a loan and therefore the business owner is not paying anything “back.” Instead, the investors take the risk upon themselves to invest in the company and expect profits from the revenue in exchange for their investment. 

The benefit of equity finance is that the business owner financing their business without taking on massive debt. Additionally, they are able to make business connections with their investors that they might not have had access to previously.

However, the downside of equity financing is that the entrepreneur dilutes their ownership in the company. When someone else owns shares, they may have the power to determine the direction of the company.