Q: Who may be considered angel investors and how to find private funding sources to startup a small business? What are other options other than angel investors?
A: Investor is someone who commits capital in order to gain financial returns. However, there are some angel investor capital out there that doesn’t seek any return if the investment goes busted.
When starting a small business, why is it recommended to go for angel investors? There are a few reasons for this:
1. Funding timeline
Since most of the private investors may be close to the person who startup the small business, the business owner may not necessary go through all the hassle of presenting the business plan and providing supporting documents as needed with banks.
2. Procedures
Thus, it not only shorten the funding timeline as stated above, it also reduces the possible red tape or many complicated steps in getting the fund, such as those grants for starting a business or women starting a business grant.
3. Supports
Angel investor capital are mostly from wealthy people, who were, at one point, entrepreneurs themselves. So, not only they are able to support financially, they could also be providing valuable advices and experience sharing with the business owner that receive the funds.
4. Relationships
Most of the time, private investors for startup small business knows the business owner well. By supporting each other in what the other party lack, the original relationship may be brought to a higher level as a more productive and value creation could be done. Throughout the business co-operation, new challenges and experiences could be worked out and further improve the future relationships among the parties involved.
Private Investors for Startup Small Business
Of course, other than angel investors, there are many other private investors out there. The general grouping of investors are:
1. Angel Investors
2. Commercial Banks
3. Lending Clubs
4. Venture Capital
5. Partnership or Joint Venture
Let’s look at each of the group in detail:
- Angel investors
This had been discussed in above section.
- Commercial Banks
It may be a tougher task to get a business loan from commercial banks. You may need a very strong business plan (check out free business plan template) and a very convincing presentation as well as be very skillful in cash flow management. It’s important to be winning in the cash flow business.
- Lending Clubs
Lending clubs are network of investors that are ready to loan money to people with good credit. Typically you can find rates equivalent to banks or better without all of the hassles that a bank gives you. This should be one of the first resources you try since it is often quick and easy. Different from angel investors are these people usually lend with a purpose and may not know the person who is starting up the small business.
- Venture Capital
Venture capital (also known as VC or Venture) is a type of private equity capital typically provided for early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and ICT (information and communication technology). Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.
- Partnership or Joint Venture
If you are lucky enough, you may find a partner into your company where this partner is playing a role as a sleeping director. Or, this partner may be actively involve in the operation and management, thus leveraging each others skill set, network and resources to achieve success in the business venture.
In conclusion, it shouldn’t be a tough task to find private investors for startup small business, such as from business networking sites or business associations network.
Source: http://www.corporatejourney2u.com/business/private-investors-for-startup-small-business.html
