Equity Financing is when a company sells an ownership stake in the company to investors. Equity is usually preferred by early stage companies that need flexibility regarding capitalization. In an equity situation, investors profit as the company profits since they are partial owners. This provides the advantage of not having a debt service payment draining revenue from the company in its early stages of growth. Most companies sell 10-30% of their company for a first round funding - obviously there are exceptions but this is the average.

Investors typically profit in two ways from an equity deal; via their proportionate "per share" percentage of company profit (called a dividend) and via the final sale of the security through an exit strategy (example: the company buying the securities back from the investors, the company and its issued, and outstanding securities being bought out by another company, going public and selling on the open market, etc.)

There are several types of equity financing available. Determining which program best suits your company is based primarily on transaction size. While most companies use the 504 and 506 types of financing, we, too, recommend the standard 504 or 506 offering for our clients.