Compare equity, venture capital, grants and crowdfunding
Compare share capital, venture capital, government grants and crowdfunding, including control and eligibility trade-offs.
Exam scope and assessment notes
Cambridge IGCSE (9–1) Business Studies 0986, 2026 syllabus, Version 2. This is the separate 9–1 legacy route; 0774 replaces it for first assessment June 2027. Candidates are not assessed on constructing income statements or statements of financial position, nor on price-elasticity or exchange-rate calculations. Simple cash-flow forecast construction is assessed. Written practice is self-checked, not an official Cambridge grade; timed-paper evidence and human subject-teacher review remain outstanding.
Before you begin
- No previous finance study is assumed. Identify the time period, whether a figure is a stock or a flow, and the units before calculating or recommending.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What is a common trade-off when a company issues shares?
What you will learn
- Identify non-loan external finance
- Explain the trade-off between capital and control
- Check terms and eligibility
External finance need not be a loan
A company can issue shares to raise share capital; investors provide funds in return for ownership rights and may expect a return or influence. Venture capital is investment by a specialist investor in a business with growth potential, usually in exchange for an ownership stake and involvement.
Government grants can provide funds for eligible purposes, often subject to application criteria and conditions. Crowdfunding raises smaller contributions from a wider group, commonly through a platform; the model may offer rewards, pre-sales, loans or equity, each with different obligations.
Compare rights and conditions
Equity can avoid scheduled loan repayments but may dilute existing owners' control and share future returns. A grant may not require repayment if conditions are met, yet eligibility, reporting and permitted use can be restrictive.
Crowdfunding can test interest and build awareness, but reaching the target is uncertain and the business must meet platform, customer or investor commitments. Compare the actual agreement rather than assuming every campaign or grant has the same terms.
Pause and explain
Why should a business read the conditions attached to a grant?
Worked example
A technology start-up needs $80,000 to develop a product. It can apply for a grant or offer an ownership stake to an investor. Compare one advantage and one limitation of each.
Show the worked solution
- A grant may preserve ownership if the start-up meets the terms.
- A grant is uncertain and restricted to eligible purposes.
- An investor may add funds and expertise but receive ownership or influence.
Answer A grant may preserve the founders' ownership, but its award is uncertain and the money may be restricted. An investor may provide capital and experience sooner, but founders may give up part of ownership or decision control. The start-up should compare eligibility, timing and the written terms.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A family-owned company considers issuing shares to fund expansion. Explain one benefit and one concern for current owners.
Give me a hint
Equity can fund growth without scheduled loan repayments, but ownership changes.
Compare my reasoning
- New share capital adds funds.
- Current owners' percentage ownership may fall.
- Consider expected returns, voting rights and the amount raised.
Issuing shares can raise funds without a scheduled loan repayment, but existing owners may own a smaller proportion and share future profits or voting rights. They should compare the amount raised with the control and return they give up under the issue terms.
Look for these in your work
- Capital benefit stated
- Dilution explained
- Rights and value compared
A community café considers crowdfunding for a new kitchen. State one way crowdfunding could help and two practical checks before launch.
Give me a hint
It can widen the pool of supporters, but a campaign must meet its target and commitments.
Compare my reasoning
- A campaign can collect many small contributions and demonstrate interest.
- Check fees, target rules and whether funds are returned if the target is missed.
- Check that promised rewards can be delivered on time and at cost.
Crowdfunding could bring together many supporters and help test community interest. Before launch, the café should check platform fees and target rules, then cost and schedule any rewards so it does not promise more than it can deliver.
Look for these in your work
- Potential reach or validation
- Platform conditions checked
- Commitments costed
A manufacturer receives a grant offer for energy-saving equipment but not for working capital. Explain whether the grant can address a wage bill due next week.
Give me a hint
Apply the grant's stated purpose and distinguish investment from operating cash.
Compare my reasoning
- The offer restricts funds to specified equipment.
- Wages are an operating payment outside that purpose.
- Find a permitted source for the short-term cash need.
The grant cannot be assumed to cover the wage bill if its terms restrict it to energy-saving equipment. The manufacturer should keep the grant for its eligible purpose and identify an appropriate source for the short-term operating need.
Look for these in your work
- Restriction applied
- Purposes distinguished
- Next action appropriate
Common mistakes
- Assuming grants are automatic or unrestricted
- Treating share capital as debt with interest
- Ignoring dilution or investor influence
What can you explain now?
What is a common trade-off when a company issues shares?
Compare with the explanation
It raises capital but may dilute existing ownership
Shareholders receive ownership rights under the terms.
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Make it stick
How do share capital and a bank loan differ in their effect on ownership and repayment?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.