Equity financing refers to the process of raising capital by selling shares of a company to investors. This method allows businesses to obtain funds without incurring debt, as investors become part-owners of the company in exchange for their investment.

Characteristics
– Ownership Dilution: Existing shareholders may see their ownership percentage decrease as new shares are issued.
– Long-Term Commitment: Investors typically expect to hold their shares for a longer period, seeking capital appreciation and dividends.
– No Repayment Obligation: Unlike debt financing, equity financing does not require repayment, which can ease cash flow pressures.
– Investor Involvement: Equity investors may seek a say in company decisions, often through board representation.

Examples
– Venture Capital: Startups often seek venture capital funding, where investors provide capital in exchange for equity, usually in early-stage companies with high growth potential.
– Initial Public Offering (IPO): A company may go public by offering shares to the general public, allowing it to raise significant capital while providing liquidity to existing shareholders.
– Angel Investors: Wealthy individuals may invest in early-stage companies, providing not only funds but also mentorship and industry connections in exchange for equity stakes.