(a) Equity (shares)
Features
Finance raised through sale of shares to existing or new investors (existing investors often have a right to invest first – pre-emption rights).
Providers of equity are the ultimate owner of the company. They exercise ultimate control through their voting rights.
Issue costs can be high.
Cost of equity is higher than other forms of finance – they carry the risk, and therefore command the highest of returns as compensation.
New issues to new investors will dilute control of existing owners.
When appropriate
Used to provide long-term finance. May be used in preference to debt finance if company is already highly geared.
Private companies may not be allowed to offer shares for sale to the public at large (e.g. in the UK).

(b) Venture capital
Features
The term ‘venture capital’ is normally used to mean capital provided to a private company by specialist investment institutions, sometimes with support from banks in the form of loans.
The company must demonstrate to the venture capitalist organisation that it has a clear strategy and a convincing business plan.
A venture capital organisation will only invest if there is a clear ‘exit route’ (e.g. a listing on an exchange).
Investment is typically for 3-7 years.
When appropriate
An important source of finance for management buy-outs.
Can provide finance to take young private companies to the next level.
May provide cash for start-ups but this is less likely.

(c) Business angels
Features
Business angels are wealthy individuals who invest directly in small businesses, usually by purchasing new equity shares, but do not get involved in the management of the company.
Business angels are not that common.
There is too little business angel finance available to meet the potential demand for equity capital from small companies.
When appropriate
A way for small companies to raise equity finance.

(d) Private equity funds
Features
Private equity is equity in operating companies that are not publicly traded on a stock exchange.
Private equity as a source of finance includes venture capital and private equity funds.
A private equity fund looks to take a reasonably large stake in mature businesses.
In a typical leveraged buyout transaction, the private equity firm buys majority control of an existing or mature company and tries to enhance value by eliminating inefficiencies or driving growth.
Their view is to realise the investment, possibly by breaking the business into smaller parts.
When appropriate
If used as a source of funding a private equity fund will take a large stake (30% is typical) and appoint directors.
It is a method for a private company to raise equity finance where it is not allowed to do so from the market.

(e) Bonds
Features
A bond is debt capital issued by a company, local authority or government (called the issuer). An investor lends the organisation money (face/par/nominal value – i.e. the loan principal) for a set period in return receiving a fixed interest rate (called the coupon rate).
The loan principal is then repaid at the pre-set maturity date which can be any period from 1 day to infinity (in practice they tend to be 10 to 20 years). The stability of the issuer is the bond holder’s main assurance for getting repaid which is also reflected in the coupon rate. Bonds issued by the Government (called Gilts) are considered the lowest risk and attract the lowest coupon rate, whereas corporate bonds are riskier and therefore require the issuer to pay a higher coupon rate.
Bonds are often traded on the money markets.
The terms bond, debenture and loan stock are often used interchangeably for describing the same instrument. In some systems there may be a technical or legal differentiation based on whether the instrument is secured or not and also its ranking on liquidation.
The US uses the term bond but not debenture whereas in the UK the term bond is used to describe both loan notes and debentures. Notes are typically short-term in duration with debentures long term. Most debentures would then be secured on assets in such a way that lenders rank above unsecured creditors in a liquidation.