Equity financing entails the sale of shares, also know as “stock”, and it provides an investor with actual ownership in the company. In the basic form of equity, there are no claims on the assets per se of the equity holders. Founder’s equity is simple in this way. Its usually referred to as “Founder’s Stock”, and legally as “Common Stock” in the USA and “Ordinary Shares” in the UK.
“Preferred Shares” usually give “preference” to the shareholders of such, and often lay claim to certain assets of the company, much like debt instruments (below).
Shares of stock will also be referred to as “securities”. However, the term “securities” does not just mean shares of equity. It can be used to describe debt instruments as well.
Investors can buy shares of either common stock or preferred stock in student startup companies. Often the early investors are either friends or family; those in the next “round” are usually high net worth individuals referred to as “angels” or “business angels”. More than one investor in any given round is referred to as an investment syndicate or “syndication”. Investors often, but not always, prefer syndications.
Angels sometimes organize themselves into networks in order to share the dealflow, learning, due diligence and exercise their preference for syndicated investments. One such network in the USA and Canada is the Keiretsu Form, which has chapters in a host of locations including the Northwestern USA: https://www.k4northwest.com/cpages/homepage
Some universities have alumni angel investment networks, either formal or informally organized. StudVent intends to gather a database of these networks and keep it updated for our student entrepreneurs. Also, there are other individual and networks that have an interest in investing in student startups. We intend on capturing those and making those available for your reference.
As the company grows and raises larger amounts of capital, the investors will often be “venture capitalists”. These professional managers who invest and manage the money of others, usually through “funds”. A fund is a pool of capital provided by more than one investor.
Strategic investors are usually corporations or other organizations that will also invest in startups. These investors usually invest “side-by-side” with venture investors in syndications.
StudVent will offer further information on the process of raising equity investment particular to student startups. Look for more resources as we obtain them.
StudVent has a goal of eventually raising and investing its own venture capital fund that will be focused on student startups in particular.