Many venture capitalists demand an equity stake of 30%-50%, particularly in cases where the company lacks a strong financial background. Most company founders and owners are reluctant to dilute that amount of corporate power, which reduces their alternatives for equity financing.

Disadvantages of Equity Financing
1. Dilution of ownership and operational control
The main disadvantage to equity financing is that company owners must give up a portion of their ownership and dilute their control. If the company becomes profitable and successful in the future, a certain percentage of company profits must also be given to shareholders in the form of dividends.

Their successful backgrounds enable them to provide priceless help in the form of business contacts, management experience, and access to other sources of capital. Many angel investors or venture capitalists will help companies in this way. It is critical in the startup stage of a company.

2. Access to business contacts, management expertise, and other sources of capital
Company management receives some benefits from equity financing too. Some investors are interested in the working of the business in which they invest and individually interested in being part of it toward its development.

Investors usually look at the long term without expecting a short-term return on their investment. It enables the company to reinvest the cash flow from its operations to grow the business rather than focusing on debt repayment and interest.

Advantages of Equity Financing
1: Alternative source of funding
The primary benefit of equity financing is that it provides a source of alternative funding to debt for companies. Small start-ups that may not be qualified to obtain large bank loans can access funding from angel investors, venture capitalists, or crowdfunding platforms to finance their needs. In this case, equity financing is perceived to be less risky compared to debt financing since the company will not have to repay its shareholders.

5. Initial public offerings (IPOs)
Companies that are quite well-established can raise finance with an initial public offering, or IPO. IPO is a method of raising finance where companies allow its share to be traded in capital markets by offering it to the public.

4. Corporate investors
Corporate investors are large companies which invest in private companies to provide the needed funding. The investment is usually created for the purpose of establishing a strategic partnership between the two companies.

3. Venture capital firms
These are firms that make investments in businesses they believe will grow fast and appear on stock exchanges later. They invest a larger sum of money into businesses and acquire a larger stake in the company compared to angel investors. The method is also referred to as private equity financing.

Crowdfunding platforms allow many people in the public to invest in the company in small amounts. Members of the public decide to invest in the companies because they believe in their ideas and hope to earn their money back with returns in the future. The contributions from the public are summed up to reach a target total.

1. Angel investors
Angel investors are rich people who buy stakes in businesses they believe have a potential to give higher returns in the future. The individuals usually bring their business skills, experience, and connections to the table, which helps the company in the long term.

Equity financing is especially important during a company's startup stage to finance plant assets and initial operating expenses. Investors make gains by receiving dividends or when their shares increase in price.
Major Sources of Equity Financing
When the firm is still private, equity finance can be raised from angel investors, crowdfunding platforms, venture capital firms, or corporate investors. Finally, shares are sold to the public as an IPO.