Debt or Equity, Part 2

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If your company is fast-growing, innovative, and produces terrific products or services, you may find that people aren't interested in just purchasing what you sell, they're also interested in purchasing a piece of your business. Although the make-money-fast days of the recent explosion (and subsequent implosion) of dot-com firms seem to be behind us taking with them a boom in IPOs plenty of investors still are looking for good opportunities to put their money to work.

Here are some of the more common ways that you can raise equity capital from investors:

Angel investors
Family and friends
Founder's capital
Initial public offerings
Strategic investors
Strategic partners
Venture capital

Keep in mind, however, that equity financing is considerably different than debt financing, and in many ways it can be far more intrusive to your business. Here are some of the things you need to consider before committing to an equity financing plan:

Unlike debt that can be paid off (for example, by getting a new bank), it is very hard to reverse (that is, pay off) an equity investment. The investor will want a lot more money than he put in because of the risk he assumed. So you should generally look at raising equity as an irreversible event. Being cautious is understandable! You'll be living with these investors and their expectations for a long time.

Equity investors will want to know how, how much, and when they will get their money back. You'll need answers to these questions.

Don't forget that most start-ups go through several rounds of new equity investors. You can't give away a lot of the equity early on or you'll have too little left for the later rounds or you'll be faced with losing control of your company in those future rounds (and losing control of your exit strategy, too).

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