If you want to fund your business there are different sources of money lending that you can choose from. You can ask your friends and family to help or take out a loan from a traditional bank. You can also opt for different grants and loan programs designed by the government for that matter as well. However, there are also a few other sources from where you can get adequate funds for running your business that are much different from the traditional borrowings from a bank or other online lending sources. Here they are.
Venture capital
Venture capital or VC firms typically make direct investments thereby helping companies in fledgling. In exchange to their funds they take on equity stakes in that particular business. Typically, most of the VC firms are partnerships investing firms. There are known for their unique features such as:
- They are highly selective in making any investment
- They usually invest only in those businesses that are established already
- They choose business to invest that have a proven track records and has shown its ability to generate adequate profits
Typically, the VC firms invest in any business with a to cash out their equity stake especially if the business holds any IPO or Initial Public Offering eventually so that it can be sold to a bigger existing business. The competition for VC funding is very powerful and influencing with an individual VC firm receiving more than 1,000 applications for funding in a year. However, they usually make investments of large amounts, o0ften to the tune of $250,000 at the minimum. They may also invest in startup businesses provided it has enough potential for exponential growth.
The angel investors
You may not always be successful in getting hold of a VC firm to fund your business and you may not even get enough cash from a bank or by selling your own assets. You may not have any rich friend or a relative but all these does not mean that the hopes of funding your business is not there. You can always look for those wealthy non-relatives to fund your business. Some of these well-off individuals may be highly interested in investing in a startup business like yours. Once again, they will do so in exchange for an equity stake in your business, new or existing. These investors are known as angel investors. Typically, these angel investors have been successful in investing in a particular industry but they are now looking for newer and better opportunities for making an investment within the same industry.
- The angel investors not only offer financing to launch your business but may also be willing to offer you guidance to go ahead with your business based on their own experience
- It is also found that the angel investors leverage their existing contacts within a specific industry so that you have a better chance to succeed in your business
However, it is not easy to find these angel investors. You will need to do some research for this which once again is not an easy task. This is primarily because the angel investors like to maintain a very low profile. The only and best possible way to identify them and to be identified by them is by asking other financial advisors and business owners. If other angel investors join a specific network, it becomes much easier for a potential startup like you to locate them. There are several such organizations out there that can help you in your search and put your business in front of them, both individually and in groups.
Approaching the angel investors
There are lots of ways in which you can approach the angel investors to fund your business. It can be a call made to their office, if you know that is, to fix an appointment or simply getting in touch with one in an investment conference. There are several angel organizations that hold conferences and networking meetings off and on. However, if you are lucky enough to meet a potential angel investor, you will have a limited amount of time to convey your message and needs by making a strong impression. In fact, every second counts to them. Therefore, make the best use of the time by keeping your message short, to the point and of course appealing. All these mean that the odds of grabbing the attention of an angel investor are not especially high.
- It is characteristic for an angel investor to typically do one to three deals in a year
- On an average, they invest within the range of $25,000 to $100,000
- They will typically meet no more than 15 to 20 potential investment candidates in a month
Pitch it perfect
Therefore, make sure that you practice your pitch if you want to avail funds from an angel investor. Make sure that you have polished it into an art so that you can make your intentions very clear to angel very quickly, effectively and most efficiently. Make sure that you focus on relevant and most important points such as:
- Why you think your product or service will be liked by your customers?
- Why do you think your business will be exceptional and unique as compared to your competitors in the market?
- Why you consider yourself to be the fittest person to run the business?
- How much of return you can offer to the investor for making an investment in your business?
With all these things to be conveyed within a very short time frame of no more than two minutes, or even less, this is often called to be the ‘elevator pitch’ as that is then time you get in an elevator ride, usually. Still, in most of the cases it is found that relying on an angel investor is far more worthy than getting a venture capital firm to invest in your startup business. Now that you know about the difference between the two, make sure you make the right choice according to the need of your business.
