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Selling equity means taking on investors and being accountable to them. Many small business owners raise equity by bringing in relatives, friends, colleagues, or customers who hope to see their businesses succeed and get a return on their investment. Learn how Experience Helps When Looking for Investors.

Other sources of equity financing include venture capitalists, which are professional investors willing to take risks on promising new businesses. These investors include individuals with substantial net worth, corporations, and financial institutions.

Most investors do not expect an immediate return on investment during the first phase of your business; they bank on your being profitable in three to seven years. Equity investors can be passive or active. Passive investors are willing to give you capital but will play little or no part in running the company, while active investors expect to be heavily involved in the company’s operations. Personality conflicts can arise in either arrangement. Before you enter into any agreement with an investor, carefully consider whether or not you are compatible, as this person will own a portion of your business.

Equity financing is not cheap: your investors are entitled to a share of your business’s profits indefinitely. Conversely, small business owners who may have difficulty securing a traditional loan or are comfortable sharing control of their business with partners may find equity financing a mutually beneficial arrangement.

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