- Equity Funding Mode:
Majority of businesses prefer the equity-funding mode. Such funding is provided the venture capitalists or institutional risk takers who could be large financial institutions or high net worth individuals. Such investors constantly look out for start-up businesses where they can invest their money. They prefer to invest in at least three to five year old companies that posses the potential of becoming large national players in the end. Such venture capitalists check several potential investment options annually but may choose to invest only in few of them.
The venture capitalists may choose to participate in the management strategies of the company, in which they invested. They generally play a passive role in that company’s management, however, are free to react if they do not find certain things in the management worthy from the investment perspective.
Generally, the venture capitalists do not prefer funding start-ups and financing companies in their early stages, as the level of risk associated with such companies is often high. However, there are exceptional cases, wherein, the entrepreneur has obtained such a funding pattern, if he has a proven track record in the business where he operates.
- Debt Funding