Funding & Investors – Funding and Investors Overview
Private funding sources are not what they used to be. Back in the day a private investor would look at your business plan, your market and your niche, and determine whether they believed you were a good investment. The amount of risk / reward that was associated with a given company was the determining factor as to their ability to fund your business venture. Now, with the advent of the Internet, investors from all over the world have access to your business plans, your market and your niche. This information is freely available to them. As a result, more private funding sources are looking to these new sources for their investments.
In the past, private investors were typically individuals who had direct experience in your industry. Today, we are seeing an increase in the use of specialty investment funds. These specialized groups are made up of institutional investors such as mutual funds, institutional bankers and pension funds. The purpose of these groups is to diversify your portfolio so that you are able to take advantage of any stock market fluctuations without taking on too much risk.
Another type of private funding source is angel investors. Angel investors are wealthy individual investors that provide start up capital to fledgling companies. As you can imagine, most angel investors are wealthy and have a high tolerance for risk. They are usually looking for companies with products or services that have the potential to be successful and they will take a position, meaning they will take partial ownership of your company if it turns a profit.
One of the fastest growing sectors of private funding sources is venture capital. Venture capitalists like to invest in companies that have the potential to be large success stories. Most venture capitalists require a combination of personal equity and cash to ensure that they will get their money back. This means that they will often require a highly diluted initial capital investment from your company. Because of this, many early stage entrepreneurs prefer working with angel investors.
Private investors can also provide seed funding as well as Series A and Series B funding. Seed funding is provided by angel investors and generally requires no personal equity. Series A and Series B funding are generally provided by banks and other private financial investors. These types of financing are generally used for rapidly growing companies. Investors seeking venture capital should work with several private investors so that they have multiple investment options if their business is successful.
Private investors are not the only ones who can provide capital to your business. Your existing business organization may also want to fund your venture. As with private funding sources, some companies will provide seed capital to new ventures and some will continue to source small amounts of venture capital as the company grows. The key to convincing a business partner or investor is to create a good case for why your business will succeed beyond your previous profits. Include a current or historical case study that presents a clear case for why your business is expected to exceed your past performance. Also, don’t oversell what your company has to offer in order to convince a partner or potential investor.