Overview of potential sources of capital
This refers to funds contributed to a company by one or more (co-) owners, for example in the form of cash, contributions in kind, personal contributions, or profits that flow back into the company. Equity capital is reported on the liability side of the balance sheet. While it entitles the persons concerned to receive a share of the company's profits, it also obliges them to bear any losses. Those who provide equity generally have a right to participate in company decisions.
This term, which originated in the US, refers to the provision of liable equity capital or equity-like funds. The capital is provided for a contractually agreed time period, usually three to ten years. The financial backer largely waives the need to provide collateral. Whether a company receives risk capital or not depends primarily on its growth prospects and the anticipated return. Venture capital is mainly used in the initial phases of a company, and to finance growth. Venture capital also includes advice and support from the financial backer. The scope of these services depends on what the financial backer is actually providing, and on the stage of the borrower's development.
Mezzanine financing is a collective term that describes types of financing whose legal and commercial structures represent a hybrid of equity and debt financing. Usually a company receives equity capital without the company giving the lender the same rights as the actual partners. Mezzanine capital can be in the form of equity-like instruments (referred to as equity mezzanine) such as participation rights, dividend-right certificates, or silent partnerships, or in the form of convertible or option bonds. By contrast, mezzanine capital granted in the form of subordinate loans is of a debt nature and is reported as a liability on the balance sheet (referred to as "debt mezzanine"). Credit lines can be increased through mezzanine, which makes more favorable mixed financing possible.
IPO, short for Initial Public Offering (formerly also referred to as a "going public"), is the first offering of a company’s shares on the public capital market. This gives the company new funds to finance growth and strengthen its equity. IPOs can also be used to handle business succession and spin-offs. Other reasons include improving borrowing costs by raising the credit rating, increasing awareness of the company or its attractiveness on the labor market, and increasing its competitiveness.
The term "private equity" originally comes from the US. It is capital supplied to the borrower from private or institutional investors in the form of equity capital. The borrowers are primarily small and medium-sized companies. In general, the capital is made available for a limited time period of three to ten years. Collateral is not generally required. Private equity generally also includes advisory and support services. The scope of any know-how provided depends on what the investor generally offers, and on the stage of development of the company borrowing the capital.
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