Short definition: Equity financing is the process of raising capital for a business by selling ownership shares to investors.
Explanation: It involves offering investors a portion of ownership in the company in exchange for their financial investment. Equity investors typically receive a share of the company’s profits in the form of dividends and may also benefit from an increase in the company’s share price.
Example: A startup company might raise equity financing from venture capitalists or angel investors in exchange for a percentage of ownership in the company.
Additional information (optional): Equity financing is a popular form of financing for new and growing businesses, as it does not require the company to take on debt. However, it also means that the company’s founders and existing shareholders give up some control and ownership of the business.