The following table explains the different requirements within which debt and equity providers operate. The type of business and what the capital is to be used for are both extremely important in determining whether debt or equity financing should be sought. Before deciding on what combination of equity and debt financing you will use to fund your business you should also consider the relative advantages of each. Equity Equity investors can be active or passive. Passive investors are those willing to provide capital and take no part in the running of the company.
Active investors expect to play a hands-on role in the running of the company.
Investment can be long term with investors willing to accept dividends, or short term where investors wish to grow a company and then cash out for a profit. Equity investors include wealthy net worth individuals, venture capital funds, and corporates. Equity finance is provided by investors who, by definition, are willing to gamble on the success of an organisation. They do not expect a return on their investment in the early stages of the organisation, hoping instead for a huge success in three to seven years. Choosing an equity investor is extremely important as they become a part owner of your company.