Using equity as collateral for funds and labor is a simple method to assist your financing efforts.
Partner Equity Investment
By having a partner invest and buy equity in your company, the responsibility of the business’ success is now a shared and joint effort. It is often a concern that bringing in a partner means losing control over the business, especially if your partner provides enough capital to outweigh your share of the company. In some effort to relieve this concern, many companies attempt “sweat equity” trials before fully signing on a partner. With sweat equity, a person will work for your company providing their time and labor, not their money. In return, they receive small portions of equity to the company. By using this method, you can add value to your company with the projects completed as well as test the loyalty and dedication of your potential partner. When all is said and done, if you partner passes all your tests, let them write you check for the rest of the shares you are willing to sell and congratulate them on their new partner position.
Direct Public Offering
A direct public offering (DPO) is a means of raising capital by selling equity shares of the company directly to individuals including customers, employees, vendors and other community members. There is no prerequisite size or profit numbers a company must have for a DPO, though these numbers will likely influence the company’s ability to secure investors and the amount of capital it can raise.
Unlike an Initial Public Offering (IPO), a DPO does not require the use of an investment firm or broker-dealer, is less restrictive, and much less expensive. Because DPO’s market to people more personally familiar with the company, the shareholders tend to have more company loyalty. The downside is that DPOs do not generate as much initial investment because they must market direct, without the help of professional financiers.
DPOs are a good option for businesses that aren’t able to secure representation from a traditional investment banking firm for an IPO or want more control over their mix of shareholders and company decisions. A DPO can cost between $50,000 and $100,000 and take from 6 months to a year to be completed. To file a DPO, a company must have both internal and audited financial statements and must file with the Securities and Exchange Commission. Private firms specializing in DPOs can assist with the paperwork and ensuring compliance with regulations associated with DPOs.