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Equity Financing
Does your company has a high proportion of debt to equity? Experts advise that you should increase your ownership capital for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival. Most small or growth-stage businesses use limited equity financing.
However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions.
Venture capitalists are often seen as deep-pocketed financial investors looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists.
Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy.
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