Equity Financing

Most small or growth-stage businesses use equity financing in a limited way. As with debt financing, most of the time additional equity comes from non-professional investors such as friends, relatives, employees, customers or industry colleagues.

However, the most common source of professional equity funding is that group of investors known as venture capitalists. Venture capitalists are institutional risk takers and may be groups of wealthy individuals, government-assisted sources or major financial institutions. Most specialize in one or a few closely related industries. The high tech industry of California's Silicon Valley offers many shining examples of capitalist investing.

While public perception of venture capitalists may be of deep-pocketed financial gurus looking for "that hot new business" in which to invest their money, in reality they most often prefer three-to-five-year old companies that offer the potential to become major regional or national concerns and return higher-than-average profits to their shareholders.

Venture capitalists may scrutinize thousands of potential investments annually, while investing ultimately in only a handful.