Sources of Equity Financing

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The sources of equity financing (under the new SEC rules) for businesses and commercial real estate project development fundings are ranked according to their probability of success odds below.

Number 1 Source of Equity Financing: IPO

The Initial Public Offering approach is the number 1 method with odds of a probability of success approaching 1 in 1.35. Of course, the downside is that the average IPO takes 11 months to ready for launch and comes with a corresponding price tag averaging $3 million.

Number 2 Source of Equity Financing: Regulation A Crowdfunding

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The new crowdfunding rule change, makes this approach the number 2 method with odds of a probability of success approaching 1 in 1.47. Potentially, crowdfunding offers the best combination of probability of success, cost and financial investment leverage because it directly accesses the lowest cost pool of capital – the investing-public (just like those expensive IPOs, but without the IPO price tag as a prerequisite). Use crowdfunding to raise up to $75 million but not less than $5 million.

Number 3 Source of Equity Financing: Friends & Family

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The friends and family route is the number 3 method with odds of a probability of success approaching 1 in 4.8. This route is the default method that most start-ups have to use to raise micro-funding, as they have little to attract angel investors or private equity funds to the deal. Use this method with an expectation of raising up to $100,000.

Number 4 Source of Equity Financing: Angels & Private Equity

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This approach is the number 4 method with odds of a probability of success approaching 1 in 50. Private equity funds and angel investors operated under the old paradigm (and still do) of “he who hath the money makes the rules”. Due to the fact there would always be way, way more demand for equity financing than these entities had in available funds, they were able to be very picky about their investments and very demanding about what they would get. Private equity funds and angels have potentially very deep pockets, but your odds of attracting major investment without being their employee are slim at best.