There are a plethora of capital sources available to startups and other high growth businesses. At Auxo we’ve seen them all, so we have a pretty good sense for what the benefits and drawbacks are of each. This week we're talking equity - the most popular form of startup financing.
The main benefit of equity financing is that the company is not obligated to pay back the investment, and typically as an operator you'll have more flexibility with how you deploy the funds. Additionally, equity investors are business owners alongside you, which means incentives are often very well aligned. Many equity investors pride themselves on their ability to add additional value through personal expertise or business relationships for the companies they invest in. This is especially true in the ultra-competitve venture investing universe!
the main benefit of equity financing is that the company is not obligated to pay back the investment
The main drawbacks of equity financing are: 1) your equity ownership is diluted alongside everyone else, 2) you lose some “control” over the direction of the company as other equity owners will now have a voice and possibly a board seat, but in many cases this can be a good thing because you will have more opinions and ideas to weigh, and 3) equity can be time-intensive and expensive to raise.
In a future post we'll explore more of the "why" behind our thinking that sometimes taking on additional equity financing is a bad idea. In the meantime, please reach out to us if you have any questions about your unique situation. Until then, keep building!