Equity infusion is when an investor injects funds into a start-up or ailing company. Capital infusion transfers money from a successful unit to a struggling one. Venture capitalists provide necessary funds to start-ups and companies in financial crisis.
Equity infusion refers to the process by which an investor with a financial interest in the company injects funds into start-up companies or ailing companies. Capital infusion also refers to the process of transferring money from a successful unit, division or subsidiary of a company to another unit that is not doing well with the goal of injecting new life into that unit. This type of capital infusion applies to large organizations where operations are divided into different subsidiaries with their own stake in the company, all working towards the common goal of profitability for the organization.
An example would be a company that manufactures hair products, cosmetics, diapers, cookware, and vacuum cleaners that could be divided into subsidiaries. It would have separate units for the production and marketing of kitchen utensils, vacuum cleaners, cosmetics and baby products. If the baby products unit, the cosmetics unit, and the kitchenware unit are showing profits while the vacuum unit is just making a comeback, the company’s management might decide to inject funds from the other units into the vacuum unit to give it A much needed boost. This is an internal infusion of capital.
Some start-ups may have a good premise or potential, but lack the funds needed to really get the business off the ground. A venture capitalist might decide to step in and provide the necessary capital infusion to make necessary improvements, such as purchasing equipment, leasing suitable space, hiring and paying employees, and providing office space. Venture capitalists are professionals who provide much-needed capital infusion to start-ups. The investor may also be a benefactor or business partner with a monetary interest in the outcome of your investment. Such person will only make the investment with the intention of recouping their capital investment and earning a profit when the business is fully operational and begins to show a profit.
Venture capitalists also provide necessary funds to companies experiencing a financial crisis, with the goal of gaining a stake in the company through the acquisition of shares and positions on the board of directors. Such professionals specialize in analyzing the potential profitability of an ailing company, while determining the pros and cons of providing the capital. If it is determined that the company will eventually be profitable and provide a return on investment, the venture capitalists will provide the necessary capital infusion to keep the company afloat.
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