You don’t have to take on debt to finance your business. While debt financing is always an option, many entrepreneurs prefer equity financing. With public equity or private equity financing, you can raise capital for your business without taking on debt. As their name suggests, they are forms of equity financing. While debt financing involves borrowing money from a lender, equity financing involves the sale of ownership.
Public Equity vs Private Equity Financing: What’s the Difference?
What Is Public Equity
Public equity refers to ownership in a publically traded business. Publically traded businesses, of course, are listed on one or more stock exchanges. Market participants can buy shares of publically traded businesses. Each share represents an ownership stake in the respective business.
What Is Private Equity
Private equity refers to ownership in a private business. All businesses have owners. Owners can sell some or all of their business to investors. Even if a business isn’t listed on a stock exchange, an owner can raise capital by selling an ownership stake to an investor. Private equity is ownership in private businesses that aren’t listed on a stock exchange.
Differences Between Public Equity and Private Equity Financing
Both public and private equity consist of stock shares. The difference is that public equity represents ownership in publically traded businesses, whereas private equity represents ownership in private businesses.
Public equity and private equity are commonly used for financing. If a business is publically traded, its board of directors may decide to raise capital with an offering. An offering will allow the business to sell new shares to market participants. Alternatively, some of the business’s owners may sell their shares to market participants.
Private businesses can raise capital as well. Private businesses aren’t listed on any stock exchanges. After all, that’s essentially what distinguishes them from publically traded businesses. But private businesses can still raise capital by selling an ownership stake to an investor.
There are private equity firms that seek to purchase an ownership stake in private businesses. If your business isn’t listed on a stock exchange, you may want to partner with a private equity firm. You can sell an ownership stake in your private business to a private equity firm.
Private equity financing involves a partnership with a private equity firm. The private equity firm will purchase an ownership stake in your business. As a result, you can raise capital without taking debt.
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