What is Equity Financing?
Equity financing is the act of raising capital by issuing new shares in exchange for cash from existing shareholders or new investors, increasing the equity base without creating a repayment obligation but diluting current ownership.
How It Works
- Sources: founder capital, angel investors, venture capital, private equity, IPO, rights issues.
- No interest payments and no maturity date.
- Dilutes ownership and voting rights of existing shareholders.
- Cost is implicit (required return) rather than explicit (interest).
Saudi Context
Saudi companies can raise equity through Tadawul’s Main Market or Nomu parallel market for SMEs, both regulated by the CMA. Sanabil Investments, the PIF, and a growing local VC ecosystem (Raed Ventures, STV, Wa’ed) provide private equity for high-growth ventures aligned with Vision 2030 priorities.
Example
A Saudi tech startup raises SAR 15,000,000 in a Series A by issuing 1,500,000 new shares at SAR 10 each to a venture capital firm, diluting founders from 100% to 70% ownership.