capital-raising
Equity financing raises capital by issuing ownership — common shares, preferred shares or a security that will convert into them. The company does not promise to repay a principal; it sells a claim on residual value and usually some control.
Equity financing is a sale of a slice of the company. Under IAS 32, the accounting classification of the instrument can still surprise people: some “preferred” instruments are liabilities if they contain mandatory redemption. Commercially, the investor is underwriting residual value through business valuation and a cap table.
Instruments: common equity, preferred shares, convertible notes (debt that hopes to become equity), and option pools that are economically part of the round even when they are not cash.
The round price is usually a pre-money valuation plus the new money equals post-money valuation. The owner’s cost is dilution and any governance given away in the term sheet. That cost can still be cheaper than debt financing if cash flow cannot service interest.
Pre-money €20m, raise €5m, post-money €25m. New investors own 20%. If an option pool of 10% is carved from pre-money, founders take more of the dilution than a headline 20% suggests. This is why equity financing arguments are cap-table arguments.
High growth, negative cash conversion, or a balance sheet that cannot take leverage. Also when the investor’s value is not only money — a strategic investor or a growth equity partner with customers.
Issuing equity because a bank said no, without fixing the business that the bank saw. Mixing a priced round and a note without modelling conversion. Ignoring preference stacks that make “equity” look like debt in a downside.
Equity is permanent capital until a liquidity event. It is also the most expensive capital if the plan works.
Equity financing should start from a valuation object both sides can see — not from a round number that wins the meeting. Structured financials plus investor matching are the practical work.