Equity financing is a type of financing in which companies raise capital by selling to investors, giving them an ownership stake.
For example, instead of taking on more debt, a growing tech company raises $2 million in equity financing by selling a 20% stake to a venture capital firm — bringing in capital without monthly repayment obligations, though the founders now share ownership and decision-making authority.
Why it matters: It brings in cash without mandatory repayment or interest, but forces the founder to give up a slice of ownership and future profits.
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