ABSTRACT
This chapter discusses on the role of equity in funding smaller private companies. Equity is initially created from the money first put into a business by its founders. Equity funding includes both the subscription to share capital in a company and less formal funding arrangements such as cash injections and director's loans and similar activities by sole traders and partnerships. The ability of owners to access external equity funding is a key element in small firms' funding, especially for entrepreneurial businesses seeking to grow. All commercial investors in a business hope to receive a financial return on the cash injected into a venture. For equity holders, this could be in the form of a dividend. The range of equity sources for small firms is extremely broad which includes replacement business partners, business angels, corporate venturing and equity funds. Equity funds fall into three main groups broadly distinguished by the source of funding namely publicly backed, private equity and bespoke funds.
