Final answer:
Entrepreneurs struggle to raise equity finance due to the need to demonstrate profitability, which is harder for start-ups. Established firms face fewer challenges but must consider the impact on existing shareholders when issuing stocks. Bonds offer an alternative to equity but come with their own obligations.
Step-by-step explanation:
Entrepreneurs face various challenges in raising equity finance. For start-ups, it can be difficult to demonstrate potential for profit without an established track record, which makes attracting investors challenging. These companies often rely on funding from private investors, such as family, friends, or angel investors, and may consider an Initial Public Offering (IPO) as they grow. On the other hand, established firms typically have an easier time securing equity finance due to a proven history of profitability and stability. They have more options, including issuing stocks or bonds, and they may receive better terms from banks for loans.
However, established firms may still face challenges if they have an unfavorable financial history or if market conditions are not ideal. Additionally, issuing new stock can dilute existing shareholders' equity, which can be a concern for both start-ups and established firms alike.
A bond is a fixed-income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental. Bonds can be used by established companies as a way to raise capital, with less concern over losing control, unlike equity financing.