5.2.2B: Equity & Modern Finance
Cambridge International AS & A Level Business (9609)
Master the strategic choice between Debt and Equity financing through real Dragons' Den scenarios
The Fundamental Choice: Debt vs Equity
DEBT FINANCE
Borrowed Money (Must Repay)
Retain 100% ownership and control
Interest is tax-deductible expense
Must make regular interest payments
Must repay principal (Can cause cash flow crisis)
Requires collateral or credit history
EXAMPLES:
Bank Loans, Debentures (Corporate Bonds), Overdrafts
EQUITY FINANCE
Selling Ownership (No Repayment)
No repayment obligation (Permanent capital)
No interest payments or debt pressure
Loss of ownership and control
Dividends paid from POST-TAX profit
Dilution of future profit share
EXAMPLES:
Share Capital, Venture Capital, Crowdfunding, Grants
Modern Equity Finance Methods
📊 Share Capital (Stock Market)
Selling shares to the public (IPO) or existing shareholders. Only available to Limited Companies (Ltd) and Public Limited Companies (PLC).
Strategic Advantage:
Access to massive capital pools. PLCs can raise hundreds of millions from institutional investors.
Strategic Risk:
Shareholder pressure for short-term profits. Risk of hostile takeover if shares are publicly traded.
🐉 Venture Capital (VC)
Professional investors who fund high-risk, high-growth startups in exchange for significant equity stake (20-50%). Think "Dragons' Den" or "Shark Tank."
Strategic Advantage:
VCs bring expertise, industry connections, and mentorship. They want you to succeed because they own part of your success.
Strategic Risk:
VCs demand board seats and veto power on major decisions. They'll push for aggressive growth or quick exit (sale/IPO).
👥 Crowdfunding (Kickstarter Model)
Raising small amounts from thousands of people online. Can be equity-based (selling micro-shares) or reward-based (pre-selling products).
Strategic Advantage:
Validates market demand BEFORE production. Creates early customer base and marketing buzz at zero cost.
Strategic Risk:
Public failure is visible. Must deliver on promises or face reputational damage. Thousands of micro-shareholders to manage.
🎁 Government Grants
Non-repayable funding from government to achieve policy objectives (e.g., job creation, regional development, green energy).
Strategic Advantage:
Free money. No ownership loss. No repayment. Often comes with credibility boost.
Strategic Risk:
Highly competitive application process. Strict conditions (e.g., must hire locally, meet environmental standards). Can be withdrawn if conditions not met.
Critical Link: Business Ownership Structure (5.2.1)
🔒 Sole Trader / Partnership
CANNOT sell shares. Limited to personal savings, retained profit, or bank loans. Growth is severely constrained.
🏢 Private Limited Company (Ltd)
CAN sell shares privately to friends, family, or angel investors. Must approve all shareholders (shares are not publicly traded).
📈 Public Limited Company (PLC)
CAN sell shares to anyone on Stock Exchange. Access to billions in capital. This is why companies like Tesla or Amazon can fund massive expansion.
Sign In to Keep Going
You've reached the end of the free preview. Sign in — and upgrade to Plus or Pro — to keep going with Business0960.
Full Access
Unlock all 180 lessons