Equity Investments Explained Simply

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What is an equity investment?

3 minute read

When it comes to investments in startups, an equity investment is the means of choice for many professional investors. It gives them the opportunity to actively shape the company and at the same time benefit from the strong legal position of a shareholder. But what is an equity investment? We will explain the most important aspects of this topic to you.


Equity describes the capital raised by a company with its own resources. It is the capital provided by the owners or partners of a company. Conversely, any investor who holds an equity interest in a company is also a co-owner of that company.

For example, 25,000 euros of share capital are required to establish a limited liability company (GmbH) in Germany. This capital then represents the equity capital of the GmbH. If a shareholder contributed 12,500 euro of the share capital to the establishment of the enterprise, then he owns 50 percent of the enterprise.

Let us assume that the company will increase in value in the following years and will be valued at 1 million euros. Then the shareholder's share capital of 12,500 euros will suddenly be worth 500,000 euros. If the company is sold or the shareholder sells his shares, he is entitled to 50 percent of the sales proceeds.


Equity is used to finance a company. In order to increase the equity of a company, the shareholders sell shares in the company to outside investors and thus also make them shareholders of the company.

For the investors, equity represents their nominal share of the company expressed in money. Nominally refers to a constant and fixed value. It is capital which is made available to the company by the investors without restriction and for an unlimited period.

In other words, there are no plans to repay the equity in the foreseeable future. Thus, the equity capital differs from the debt capital of a company. This includes all liabilities, such as loans and advances. Debt capital is capital that is only available to the company for a limited period of time and must be repaid promptly.


Business angels and institutional investors such as venture capitalists particularly like to invest through this participation model, because an equity investment brings many advantages. For an investor, equity has the advantage of becoming a co-owner of the company, with all the associated rights. They have a say in shareholder decisions and can thus actively shape the course of the company.

He also has the right to information and thus receives annual reports on the current status of the company at regular intervals. Finally, he also has certain profit participation rights if the company distributes or sells profits. Depending on which shares the investor holds in the company, he is also entered as a shareholder in the commercial register.



Have you ever invested in equity yourself? Let us know in the comments below!



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Jana Biesterfeldt
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The acquisition of the offered securities and investments is associated with considerable risks and can lead to the complete loss of the invested assets. The expected yield is not guaranteed and may be lower. Whether it is a security or an asset investment can be seen in the description of the investment opportunity.
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