A profitable business still needs cash. It may have to pay suppliers and salaries today while customers pay in ninety days. Or it may want to build a new plant that takes years to repay.
Two ways to raise money
- Debt
- Borrowed money. Must be repaid with interest. Lenders do not get ownership.
- Equity
- Money from shareholders. Never repaid. Shareholders get ownership and a share of profit.
Debt is cheaper if the business can comfortably service it, and the lender has no claim on future profits beyond the interest. Equity costs no cash but permanently dilutes ownership.
Capital is not free. Debt carries an obligation to pay interest whatever happens. Equity permanently shares your future success. Choosing between them is one of management's most consequential decisions.
This is why a company's first outside funding is a milestone: it marks the point where the business is no longer just the founder's.
How a business turns into something you can own
Step through the journey from a founder's idea to a tradable share.
Step 1 of 5: Founders
One or more people have an idea and put in their own money and time to start the business.
FoundersThe BusinessNeeds CapitalInvestorsOwnership
A share is simply a unit of ownership. Everything else in this course builds on that one idea.