No matter what type of small business you own, capital is essential. It can help you run your company and meet your goals. In general, there are two types of capital: debt and equity. While debt must be paid back, equity comes from external investors and doesn’t need to be repaid on a set timeline.
In exchange for equity, you’ll offer a stake in your company, which is usually an agreed-upon percentage. So how exactly can you benefit from equity? Andrew Sachs, Managing Partner at Mauloa answers that question. ...
Valuable experience
With debt, you take out a loan that you’ll repay eventually. The lender doesn’t have a vested interest in your success.
Equity, on the other hand, requires corporate governance (i.e., quarterly board meetings) and allows you to learn from the experiences of your investors. Since I’ve invested in 45 separate businesses and sat on their boards and one of my partners ran a $7 billion revenue company, we can share different outcomes that we have experienced so that your company can make the most informed decisions. Knowledge is power and that’s what you get with equity.
Less risk
Compared to debt, equity is less risky. While you will have to bring on an investor or partner and own a smaller share of your business, there is no chance of foreclosure.
We also invest as a noncontrol investor with no exit timelines. You and your partner are aligned in terms of the outcomes and success of your business. As long as you bring on the right investment partners, they’ll add value to your company and help you grow.
Resources for growth
At the end of the day, businesses are people and people like to grow. Through an equity investment, you can hire higher quality employees that you weren’t able to afford before, add a new product or line of business, and in turn expand your company in whatever way you’d like. It’s crucial if you’d like to take your company to the next level.
Assistance with business acquisitions
Acquisitions are one of the most effective ways to grow your business. That being said, it’s a lot easier to make them when you have some money and experience from an investor.
You may be able to buy your competitor down the street because they want to retire, for example. A lot of highly successful and profitable businesses start as a bunch of small companies, so this strategy is certainly worth exploring.
Source: CO