{"id":5175,"date":"2016-04-04T10:47:57","date_gmt":"2016-04-04T15:47:57","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/equity-investors-your-business.html"},"modified":"2026-06-04T12:27:00","modified_gmt":"2026-06-04T17:27:00","slug":"equity-investors-your-business","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/equity-investors-your-business.html","title":{"rendered":"Equity Investors and Your Small Business"},"content":{"rendered":"\n
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Equity Investors and Your Small Business<\/h1>\n\n
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\n By Amber Sheppard, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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An equity investor is a private individual or venture capital firm that buys an ownership stake in a startup business. The investor provides capital in exchange for a share of future profits.<\/p>\n\n <\/div>\n\n\n\n

Some small startup<\/span> businesses decide that traditional business financing, like a\u00a0loan from a financial institution<\/a>, isn\u2019t viable. This is where equity and angel investing<\/span> help. An\u00a0equity investor<\/a>\u00a0buys a part of your business and, for better or worse, is a part owner in your enterprise with an ownership stake.<\/p>\n

This FindLaw article describes the advantages and risks of bringing an equity investor to your startup<\/span>. Do your due diligence<\/span> before bringing on an equity investor.<\/p>\n

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Reasons to Use Equity Financing<\/h2>\n

Equity financing is best when the entrepreneur<\/span> may not qualify for a\u00a0U.S. <\/span>Small Business<\/span> Administration<\/span> (SBA<\/span>) small business<\/span> loan<\/span><\/a>. For example, the owner of the new group may not be able to secure debt financing due to a poor personal or business credit score.<\/p>\n

Sometimes, lenders<\/span> for bank loans reject their applications for risky ventures. An example is a federally insured banking institution refusing to finance a\u00a0cannabis business<\/a>. The bank does not want to risk losing its accreditation for loaning a small <\/span>business<\/span> owner<\/span> funds on a federally illegal business.<\/p>\n

Private investors get intrigued by risky businesses with the potential for a high return on investment (ROI). This is where equity investors and venture capital firms<\/span> can help small business<\/span> borrowers.<\/p>\n

Types of Equity Investors<\/h2>\n

There are different types of equity investors:<\/p>\n