Types of Capital (Part 1)

Today's business developments in Indonesia have made the terminology of financing or capital a common thing to hear. Terms like angel investors, venture capitaland bank loans are some of the things that have become a common topic of conversation in the community entrepreneur. Part entrepreneur are seniors and understand the intricacies of capital, but some are newcomers, who are still wondering where they can get an injection of capital for their business idea.

Capital is an asset in the form of money or non-money, which is owned by investors, and has economic value. Capital can be in the form of cash, it can also be in the form of buildings, machines, or equipment. Some of these capitals come from their own pockets, but some are given by other people in an investment activity. What are the types of investment? Broadly speaking, there are three types of investment activities:

1. Equity Financing

Menurut Investopedia, equity financing is an investment through the sale of shares in a company, so this activity is closely related to the sale of business ownership interests in order to raise business funds. Equity financing done by angel investors, venture capitalsand private equity. In this activity, investors usually look for companies that have good market potential and then inject capital into these companies. The capital injection will be calculated as equivalent to the capital structure in the company and converted into share ownership.

2. Debt Financing

As the name suggests, in this activity, capital is obtained from debt. The debt can be in the form of securities or cash. In this scheme, investors (creditors) get a profit from repaying the debt along with the interest. Debt-receivable relationships in Indonesia can occur between individuals and individuals, between individuals and legal entities, or between legal entities and legal entities. There are various regulations related to debt, depending on the subject of the debts themselves.

3. Crowd-based Financing

Crowd-based financing, or better known as through crowdfunding, is a new thing that is happening in today's market developments. Basically, in through crowdfunding, venture funds are collected collectively from the general public, mostly through the Internet and social media. It can take various forms, such as:

a. Donation Models

This model invites the community to participate in raising funds for the realization of an idea. Those who provide funds usually do not expect a financial return. However, to attract attention from the community, project owners usually provide reward or certain appreciations as incentives for donors.

b. Lending Models

This model is very similar to debt financingHowever, the fundraising is done on a micro basis from many parties. Funds that have been collected in this activity, at the agreed time period, must be returned like a debt agreement in general. This model is also known as crowdlending.

c. Investment Models

For this one model, the activities are similar to IPO (Initial Public Offering), which usually occurs in equity financing in the capital market, which is why it is sometimes called “IPO Lite”. Different from donation model, the community who provides funds will receive a return in the form of share ownership or part of the profits from the project being carried out. The amount will usually be calculated as a prorated amount of funds given. This model is also known as crowdsourceg. Recently, crowdsourcing has received the green light in the United States, and of course this will change the face of entrepreneurship in the land of Uncle Sam. Can this one day also happen in Indonesia? May be.

Those are the forms of capital that you can choose to capitalize on your business. It is possible for your business to be funded in more than one way, as long as you remember that investors always want to receive profits. You have to be realistic enough in receiving capital from other people, are you able to provide the profit expected by investors? In the next article, we want to share in more detail about the activities equity financing in Indonesia. May be useful.

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Klikonsul is a legal and business consultant in the creative economy, including information technology. We can arrange contracts, take care of permits, set up companies, to help with business planning. Further information can be read at http://klikonsul.com.