Acquisition of Additional Equity Capital

Acquisition of Additional Equity Capital

Acquiring and managing your business finances is vital to the overall success of one’s business. The acquisition of start up capital is a major concern for many starting entrepreneurs. The article demonstrates how many companies rely more on internal equity capital, opposed to external equity capital. In many sense, this is no surprise considering that internal equity is mainly generated by existing owners and shareholders. On the other hand, external equity capital comes from outside sources such as venture capitalist.

Newly started and younger companies often must rely more on internal equity capital for many reasons, but mainly because it is overall the most cost effective option. For instance a new company must have the ability to prove the financial stability and success of their operations in order to acquire any sort of external equity. They must minimize as much risks as possible for their potential investor to be at all interested. If they are not able to do so, they have little to no hope of acquiring external equity capital. However, internal equity capital is often easier to achieve, but it is at a higher risk to the business owner. For instance, the business owner is risking his own money and credit. If things go south, there is little to no hope of pulling away unscathed. If things go well though, internal equity capital is the most cost efficient option. By utilizing this type of funding source, you are retaining more ownership of your business, and overall making more money. It also makes it so you individually have more skin in the game., overall making you more accountable for your business decisions.