Why Companies Need Your Money
How a business goes from one shop to a thousand — and why it needs outside capital to do it.
Imagine you run one wildly successful dosa restaurant. It mints money. You want ten more across the city — but each new outlet costs ₹40 lakh to build, and you do not have ₹4 crore lying around. You have a great business and no fuel. This is the problem every growing company faces.
Two ways to get the fuel
- Borrow it (debt): take a loan, build the outlets, repay with interest. You keep 100% ownership but owe fixed payments.
- Sell a piece (equityA unit of ownership in a company.): bring in people who give you money today in exchangeA regulated marketplace where shares are bought and sold. for a shareA unit of ownership in a company. of all futureA binding agreement to buy or sell at a set price on a future date. profits. No repayment, but you now share the upside.
When a company "raises capital" by issuing sharesA unit of ownership in a company., it is doing exactly the second thing — at scale, to thousands of strangers, through the market. Your money becomes the bricks of those new outlets, and your shareA unit of ownership in a company. entitles you to a slice of what they earn forever after.
Does my money go to the company when I buy a stock?
Only when you buy newly issued shares (an IPO or fresh issue). When you buy on the open market from another investor, your money goes to that seller — but your ownership stake in the company is identical either way.