In this instructional video, J. Anthony Allen explains equity financing as the process of selling ownership stakes in a company to raise capital. He contrasts it with other funding options (debt, grants, bootstrapping) and walks through how equity is divided, using examples like Shark Tank deals. Allen describes the investor’s perspective: they bet that the purchased share will appreciate, but they also risk total loss if the company fails. He emphasizes the dilution of founder ownership, the importance of retaining control (never give a single investor >50% ownership), and how equity financing can be used both by early‑stage startups and mature companies seeking additional capital for new projects. The video sets up future episodes that will explore specific sources of equity financing.
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Okay, let's talk about getting some money to start your company. So there's. There's kind of four different things you can do. And I've talked about these a little bit already. But there are equity financing, debt financing, grants, and then bootstrapping. So let's talk about equity financing first. And I'm not gonna lie, this is my least favorite. And I'll explain why at the end of this segment. So what is equity financing? So equity means who owns the company? So right now, if you just started a company, you own 100% of the company. You own all the equity in the company. What equity financing does is we break it up into little pieces, and then we sell essentially pieces of the company, and we do that to raise money. So if you've ever watched, like, Shark Tank or something like that, and you see the discussions going, like someone says, I'll give you a million dollars for 20% of your company. That's equity financing. That 20% is they're buying for a million dollars. In that case, they're buying 20% of the company. And we do that to raise money to get the company started. Now, why does an investor do that? The reason the investor does it is that they're making a bet. They're making a Bet that their 20% of the company is going to be worth more than what they paid for it in the near future. So if you're just getting started and you're opening a new company and you go to an investor and you say, I'll give you 10% of my company for $100,000, then what the investor is going to do is they're going to look over your company and all the details, your business plan, everything you've got, and they're going to look at it and they're going to say, I think this company could blow up. I think this could be a really valuable company. So, sure, I'll give you $100,000 for 10%. Because. Because I think, and this is the investor talking, that that 10% is going to be worth a million dollars in a couple years once this thing really takes off. They're banking on your company being really successful. And then they can sell back, or they can try to sell back their equity in the company for that new value. But it could go the other way, right? They could say, okay, I think this is going to be really successful. I'll give you $100,000 for 10%. And then your company could totally flop. And then they've lost all their money. That's it, you know, it's not a loan, it's just they bought a piece of the company. The company didn't do well, they lost their money. That's the way it goes. So you have to find people who are willing to take that risk. But you are selling pieces of your company. So at the end of the day, you are giving up some control of the company. You no longer own 100% of the company. You might be the boss and you might still be running the company. But if somebody has 40% of your company and you have 60% of the company, that 40% person has a lot of sway. You know, if they take their money and leave, then you in trouble. So you have to listen to what they say. They are a partner in the business. If somebody has more than 50%, if somebody has 51% of your company, they own the company. They are running the company, not you. So don't ever give up 51% to any single person. So that's what equity financing is. It's selling off little pieces of your company in hopes for money to get it started. Or a lot of people do this with already successful companies where they will do a round of equity financing just to raise more money to do something new. So let's say you've been in business for 10 years and the business is going really well and it's worth a good amount of money. But now you say, I'm going to launch a new product into the market and in order to make this product, I need a million dollars up front in order to make this happen. So they do another round of equity financing, sell a little bit more of the ownership of the company to raise that million dollars to ultimately make the company more valuable. That's how equity financing works. So there are kind of three main places that we go to for equity financing. So let's go into those in the next three videos and we'll talk about kind of where to start.
