Question

Explain the four methods used by an entrepreneur to raise the required capital in the Primary Market.

Answer 1

Four Methods to Raise Capital in the Primary Market:

1. Preferential Allotment: A certain investment group receives shares from the company at a discounted price. Employees, important partners, and other strategic investors who can support the expansion of the business may be among these investors.
2. Public Issue: Through an Initial Public Offering (IPO), the business makes its shares available to the general public. Investors give the business the money it needs by purchasing shares directly from it.
3. Private Placement: A limited number of investors, including wealthy people and institutional investors, purchase the company's securities directly. Compared to a public issue, this approach is quicker and requires less regulations.
4. Rights Issue: The business gives its current owners a discount on additional shares. This approach gives the business greater funding while preserving the ownership stake of present shareholders.

5. Offer to Employees: Shares are issued to employees through stock options or employee stock purchase plans (ESPP), enhancing motivation and ownership.