Equity financing

Equity financing is provided in part by business principals. Businesses may also approach private investors and investment companies to find the capital it requires to grow. These funds improve company funding without affecting the ability of the business to obtain debt financing.

Equity sources
Business principals
  • Principals must provide a portion of the business start-up and operating funds (personal savings, residence, pension funds, RRSPs).
Retained earnings
  • Retained earnings generated by business activity can be reinvested into the company to help finance its growth.
Angel investors
  • Often retired business executives with capital to invest.
  • Type of financing usually used at the beginning of a company growth phase.
  • Angel investors usually invest in projects they expect will have a high chance of success. They become a business partner and are usually involved in the management and development of the business.
Initial public offering (IPO)
  • For companies needing a massive inflow of capital to support their growth.
  • How it works:
    • The company issues and sells shares of common stock to the public through securities brokers. The stock can be issued with warrants or options.
    • A prospectus allows prospective investors to learn about business activities and financial statements as well as the securities for sale. In Quebec, the Autorité des marchés financiers oversees what information companies must provide to securityholders in the prospectus.
  • Because of the wide array of legal requirements surrounding securities transactions, the assistance of professionals is required to carry out this complex undertaking.
To find out more about IPOs, contact a Desjardins Securities advisor.
Mezzanine financing
  • Combines the features of both loans and equity financing.
  • Because the risk assumed by the lender is similar to that of stockholders, interest rates and premiums are higher than those of traditional loans.
  • Because it involves staggered principal payments, this type of financing can impact the company’s cash flow. This solution should only be considered when company-generated funds can adequately cover the additional payments.
Find out more about mezzanine financing.
Venture capital
  • For growth firms whose equity financing needs go beyond the business principals’ ability to re-inject funds into the company and whose conventional financing sources are being used to their full extent.
  • Venture capitalists are interested in potentially highly profitable companies.
  • Returns are established in proportion to investment risk. It is the prospect of potentially high gain that makes venture capitalists risk possibly losing their entire investment.
  • To make your project attractive to venture capitalists, growth prospects must be realistic and backed up by verifiable facts. Investors will also want to know about medium- and long-term business projects.
  • In return for venture capital, companies give the investors a certain number of shares which investors hope will increase in value. As investor-partners, venture capitalists take an active part in the strategic management of the company.

Find out more about venture capital.

For more information
At the caisse At the caisse
Contact an advisor at a caisse.
At a Desjardins Business Centre At a Desjardins Business Centre
Contact an account manager at a Desjardins Business Centre.

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