What are four ways my company can raise equity and minimise the impact of the share price, obtaining investor?

The problem with a public company selling new shares to the general public is that it sends a bad signal. Outsiders looking at the company will think that they would never sell shares if the insiders thought the shares were underpriced -- so they must be overpriced. On average, when a firm sells new shares, the price of existing shares will drop somewhere between 3% to 5%.

There are a few ways that insiders can sell shares that do not affect the stock price.

One is to sell them as a private placement to knowledgable investors. For example, a company that makes computer components that they sell to Dell may sell shares to Dell.

The second is to guarantee the equity. A bad company couldn't sell equity & give a guarantee to buy it back at cost -- but a good company could. The way they do thisis to sell convertible bonds. If the company does well, the bonds get turned into equity, and the company gets what it wants. If it doesn't, then the investors get interest on their money & eventually get their money back -- just like a guarantee. Studies show that there is very little impact on stock price.

The third way does have an impact on stock price -- but not on the investment value of insiders. That is to have a rights offering. With a rights offering, new shares are offered to existing stock holders at a discount. For example, suppose your shares are at $20. You are given the right to buy new shares at $16. If you do it, your shares should be worth 20+16 = 36 -- or $18 per share. WHat usually happens with a rights offering is that the share price moves to $18. There is a drop in price, but there is no drop in the value of your investment.

I can't think of a fourth way right now -- but it might be to sell warants or employee stock options.

BTW -- it turns out that when banks or growth firms with no debt issue stock, there is no drop in stock price (on average). It is only with more mature companies that have already issued debt. This fact has never been published -- except as part of my doctoral dissertation.

If I answer correctly, will you offer me a job?

I sincerely hope this is for homework and not for real! If I ever thought a company was asking such questions on Yahoo! I'd liquidate my entire portfolio and buy canned dogfood, that'll always be worth something!

Borrowing will always negatively affect the share price, so some other ways of raising equity might be to use spare cash to acquire a competitor or complimentary business unit, use spare cash to reduce company debt, or use spare cash to buy back company shares on the open market.

one way would be to improve your spelling. i promise you that any company issuing credit or providing equity will think twice if they see mispellings in your application or business plan.

But to answer your question, i don't think you even have to worry about the impact of your share price if you are in the initial equity-raising stage and not a public company.

But to raise equity, and assuming your company is a start-up, you need to search for venture capital firms, or other finance companies or possibly the SBA, in order to raise funds. You should have a detailed, well-written business plan to present to potential investors (with no spelling errors), and you will probably need to present personal financial information (such as a personal balance sheet) in order to guarantee any loans you receive.

There are a number of directories of finance companies out there, with the Corporate Finance Sourcebook being the largest print version that I've seen.

I suggest you to hire Goldman Sachs.

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