What is equity fundraising?
Simply put, equity financing is when someone gives you money because he/she believes that your business has great potential. Essentially, this means that what you pay to your investors in the form of dividends on shares is typically lower than interest rates you would pay to service a bank loan (called debt financing).
What are the pros & cons of equity fundraising?
A possible disadvantage is, if your company earns high profits, you will be paying out a total amount of dividends on these investments that are a greater value than the interest amount you would pay on a fixed bank loan (that is independent of how much profit your business makes).
However, if the company does not make profits then equity financing becomes less of a financial liability upon the company given that you are not obliged to pay your investors if there are no profits (versus having to still pay the bank back for the loan you took). Equity fundraising is preferable because the investors bear the investment risks of the company failing. They will lose the money that they invested in that company.
Finally, private equity funding is an attractive source of start-up funding especially for companies that lack the burdensome collateral or credit-worthiness to leverage large.
To have a good chance of securing equity capital in Singapore, you need to show your potential investors that you have a watertight and comprehensive business plan, clear exit strategies, reasonable and prudent financial projections, an experienced go-getting management team, as well as strong growth potential. Otherwise, you will have to seek other sources of funding like from venture capitalists, business angel investors, banks, investment companies/funds or financial institutions.
