Today entrepreneurs have a variety of ways to raise capital to start their business. This includes. However, they are not only limited to angel investors as well as venture capital firms as well as personal funds and credit.
Angel Investor
A person who is an angel investor is an affluent person who is looking to invest substantial amounts of money in a startup. One of the major benefits of angel investors is the fact that they tend to be more flexible than venture capital companies when it comes to choosing the right investments. In other words, an angel investor will likely be more accommodating of an entrepreneur’s lack of a plan than an investment firm that is a venture capitalist. An angel investor is not an irrational player and will probably never invest money in an entrepreneur who hasn’t developed an overall plan. The disadvantage of looking for investors who are angels is they’re difficult to locate; they don’t advertise as much as venture capital companies. Furthermore, angel investors aren’t always seeking new investment options. Another issue with being an angel investor could be that they can become involved too much in investing by being involved in the day-to-day activities.
Venture Capital Firms
Venture Capital Firms (VCs) always conduct “homework” regarding the businesses that they may invest in. As part of their goal, search for an organization that has an effective managerial staff with an entrepreneur who has an unwavering vision and a thorough understanding of the business they are working with. Because VCs are liable for a significant amount of risk when they invest in start-ups company, it is essential that the business demonstrate a high likelihood of success. Due to the amount of risk involved and the numerous business plans that are submitted, VCs decline more opportunities to invest than they take every year. The process of acquiring capital investment for the first time through a VC is extremely competitive for the millions of entrepreneurs hoping to get their next great idea supported.
A person who is an entrepreneur Funds and Credit
Using one’s personal funds and credit, although a viable alternative to angel investors and VCs, causes much risk to be incurred by the entrepreneur-possibly too much risk. If the venture fails, the businessman is at risk of bankruptcy. Though it can be risky, the usage of personal resources isn’t without rewards. In the first place, entrepreneurs can retain all ownership of the business. In the second and third alternatives, the business owner will lose a proportion of the business, often significantly. If a large portion of the company’s assets is gone, the owner could be at risk of losing control over the business. For instance, in 1985, Steve Jobs was fired from Apple, which was a company he had founded, as there was no longer any interest in the company that was controlling.
While there are many other methods to get capital for a new start-up, these three methods are the most popular. My advice to entrepreneurs is to determine the best option for your company by asking these questions: What amount of capital do I require? Is my concept in an age where it is mature? Are there markets that are strong for my company? All of these questions will inform you on the best route to pursue to raise capital.
Seth Setterberg is a graduate student at Western Carolina University. His usual topics are government contracting as well as innovation, entrepreneurship, and economics. Webmasters and other publishers of articles are granted reproduction permission so long as this article is in all its entirety, including the author’s details as well as any hyperlinks that remain in place. Copyright 2013, by Seth T. Setterberg.