Equity

From a simplified perspective and what is typically available to small businesses, equity comes in two different forms: diluted or non-diluted.

Non-diluted funding does not require the business to give away any part of the ownership, however, it’s not necessarily “free money”. There are usually reporting requirements and limitations on how funds can be used.

Dilutive funding is funding in which you trade cash for ownership (equity) in your company. Examples include equity financing from angel investors, venture capitalists, or institutional investors. With equity financing, investors take preferred shares in the company and participate in value generation and often share in some decision-making. While this dilutes your ownership, the idea is for there to be a mutual upside, and the capital is paid back much later upon a liquidity event.