Equity Financing

This allows the business to grow without a significant debt burden to slow its progress and limit its cash flow. However equity capital usually comes at a price. Venture capitalists often require that they have significant voting rights in the company and may further insist that they take over the running of the company while the original owner is relegated to a technical position. It must be remembered that profit is the motive for most venture capitalists - they are providing capital to firms that could not obtain funding from other sources, therefore they need to control their risk by ensuring that the management aspects of the business are in their control. They are effectively then controlling the internal environment of the organization so that they can better cope with the turbulent external environment faced by many of the ventures.

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