What is an equity investment?

Equity is the amount of ownership that a person has in a business or a home. Equity equals the amount of money that is paid to reduce the loan size or how much an investor has put into a company in the way of shares. In equity investments, it shows what can happen if a company is liquidated and how much would be paid back. 

Let’s explore examples, best practices and how to find these opportunities.

Equity investment definition

Equity itself can be defined as the value of shares that are issued by a company. The investment is how much money is put in. Therefore, equity investment is a transaction in which a certain number of shares can be bought from a company which equal particle ownership in a company. Each company has a balance sheet that states the shareholders’ stake within a company.  

Shareholders can expect a payoff of the equity they put into the company if a company is liquidated. There is a certain equation that will evaluate the equity a shareholder has put into the company. 

Equity investment example

This example is a basic equation. 

Shareholders’ Equity = Total Company Assets – Total Company Liabilities

The balance sheet is one of the three financial statements that are used in a business evaluation. It breaks down a company’s assets and liabilities (debts) and equates to the sum of the shareholders’ equity.

Any investment in a company through the purchase of shares in the stock market is going towards equity. The equity is serving as pay into the company and typically, payment is made to the shareholders in the way of a dividend. These are the payments for the investors putting in the money for a company, product, or service.  

Best equity investment strategies

The goal of equity investing is to purchase shares of a company with the expectation that the shares will rise in value in either capital gains or generate capital dividends.  

The first strategy should always be a consideration of the goal.

1. How much would you like to make?
2. How much risk are you willing to take?
3. What kind of investor are you?

These questions can help you evaluate just how to move forward. There are strategies for every answer to the questions above. It also requires having a plan and keeping tabs on the investments.  

Whether you are new or a veteran, remember to do your research. Don’t always follow the “hot tips”. Instead, take a deep look into the company and how they have progressed. You’ll be able to determine just how much profit has been made allowing you to make an educated decision on the investment duration.

Don’t put all your investments into one company or even the same type of company. Diversity in a portfolio will help it grow and provide a safety net. With the variety of available companies, look into investment options and understand when it may be time to move an investment.

How to Find Opportunities for Equity Investments

Equity investments can benefit both sides. Companies are reaching out to collect private funds for operations while the investor is hoping to obtain a source of additional income in the long term. It depends on each individual and the risk assessment versus the reward.  

There are plenty of safe investments for the long term, like mutual funds or the stock market.  Each has its pros and cons:

Stock Market: 

• Pros: Potential for high return and an opportunity to choose from a variety of stocks. 
• Cons: An in-depth understanding is needed to learn about each company and its parameters.  There is also a learning curve to managing your stocks.

Mutual Funds: 

• Pros: Mutual funds are managed by a fund manager who will do all the research needed.  There will be a diversity of investments that can lower the risk.
• Cons: Fund managers charge fees that should be considered. You should also look into the performance of the funds and how long the manager has worked with these funds.

When researching equity investment, Finnovating’s Platform provides a streamlined listing of challenges that highlight available opportunities for collaboration between corporations, FinTech and investors. Each challenge is launched within the platform (either internally or externally) and the quick view displays the company detail, the type of challenge and how many days are left to join the proposal. 

Investors can make connections with businesses who are searching for funding, and startups can see a wide range of financing opportunities in one place. 

Remember why you are investing in the company. It is not a quick turnaround for instant wealth, but if you are patient, it can pay off in the long term. Evaluate who you are as an investor and the risk you want to take. Having a goal is key because if the goal is retirement, make sure you determine how much risk you are willing to take based on when you want to retire. Some options may be better in one case or another based on your goals so always take the time to do your research.