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Sources of equity financing include: Personal Savings. The first place to look for money is your own savings or equity. Personal resources can include profit -sharing or early retirement funds, real estate equity loans, or cash value insurance policies. They also include life insurance policies and home equity loans. Friends and Relatives. Founders of a start-up business may look to private financing sources such as parents or friends. It may be in the form of equity financing in which the friend or relative receives an ownership interest in the business. However, these investments should be made with the same formality that would be used with outside investors. Venture Capital. This refers to financing that comes from companies or individuals in the business of investing in young, privately held businesses. They provide capital to young businesses in exchange for an ownership share of the business. Generally, they prefer to invest in companies that have received significant equity investments from the founders and are already profitable. They also prefer businesses that have a competitive advantage or a strong value proposition in the form of a patent, a proven demand for the product, or a very special (and protectable) idea. They take a hands-on approach to their investments, requiring representation on the board of directors and sometimes the hiring of managers. Although a source of valuable guidance and business advice, they usually focus on short-term gain for substantial returns on their investment. Angel Investors. Angel investors are individuals and businesses that are interested in helping small businesses survive and grow. So their objective may be more than just focusing on economic returns. Although angel investors often have somewhat of a mission focus, they are still interested in profitability and security for their investment. So they may still make many of the same demands as a venture capitalist. Angel investors may be interested in the economic development of a specific geographic area in which they are located and focus on earlier stage financing and smaller financing amounts than venture capitalists. Government Grants. Federal and state governments often have financial assistance in the form of grants and/or tax credits for start-up or expanding businesses. Equity Offerings. In this situation, the business sells stock directly to the public. Depending on the circumstances, equity offerings can raise substantial amounts of funds. The structure of the offering can take many forms and requires careful oversight by the company’s legal representative. Initial Public Offerings. Initial Public Offerings (I P Os) are used when companies have profitable operations, management stability, and strong demand for their products or services. This generally doesn’t happen until companies have been in business for several years. To get to this point, they usually will raise funds privately one or more times. Warrants. Warrants are a special type of instrument used for long-term financing. They are useful for start-up companies to encourage investment by minimizing downside risk while providing upside potential. For example, warrants can be issued to management in a start-up company as part of the reimbursement package. A warrant is a security that grants the owner of the warrant the right to buy stock in the issuing company at a predetermined (exercise) price at a future date (before a specified expiration date). Its value is the relationship of the market price of the stock to the purchase price (warrant price) of the stock. If the market price of the stock rises above the warrant price, the holder can exercise the warrant. purchasing the stock at a price below current market price.