Venquity > Financial instruments Financial instruments
 

Financial instruments

In today’s economy many different methods of attracting investment are used . However, not all of them are available or viable for a Startup Company. There are two main financial instruments to raise capital – debt capital and equity invetsment. Equity invetsment represents a transfer of shares of the company-contractor against external investor money. The investor is expected to win when business starts to grow. The main characteristic of this type of financing is that there is no need to pay regular contributions to repay the debt. The investor actually takes part of the risk business together with the entrepreneur. He will win only if the entreprneur wins. Therefore, the relationship between the participants: investors, manager, entrepreneur is crucial in the process of investment. The management of the companies will work closely with the investment company and its management. The investor will offer the selected companies not only capital but also know-how, modern business practices and will be a stable partner, sharing both profits and risks. In comparison, debt financing is given only for a certain period of time and regular repayment installments should be paid. For this reason, debt financing is more appropriate for new companies that have no activity for previous years and no accrued capital resources to meet their obligations.