Research On Application Of Multiple Equity Financing In Venture Financing

As the development of capital market and innovation of financialinstruments in China, particularly after the SME and GEM, the OTC markethas become more and more active. The multi-level capital markets in ourcountry have greatly improved. Some start-ups which have broad room forgrowth can go to IPO smoothly and become public companies. Many venturecapital funds have established which enrich and strengthen the capitalmarkets. At the same time, equity financing has become increasingly frequentand diverse. Now except the founders’ own funds enterprises often makemultiple rounds of equity financing before the IPO. But why they needmultiple equity financing after set-up instead of just one time. This paperargues that the perspective of capital requirements isn’t able to fully explainthe reason. Because of business life cycle, demand for funds shows stagecharacteristics and the times and mounts of financing are strictly limited andconfirmed. But the phenomenon of one-time financing can’t be excluded.Only combined with financing costs and the angle of entrepreneurs’ownership can explain the advantages of multiple equity financingreasonably. So, here is the conclusion. Assume that the total amount of equityfinancing is constant, multiple equity financing could reduce financing costsand the lose of entrepreneurs ownership due to the increasing of corporatevaluation, which ensure the stability of corporate control right.