Funding Sources For Small Businesses

Funding & Investors are those people who provide the initial investment for entrepreneurs or companies to launch their ventures. The funds are needed in order to run the business successfully and bring in sufficient revenue. There are a number of sources from which startup companies may require capital, such as bank loans and personal savings, to start up the business. When seeking funding, it is important for entrepreneurs to be clear about what they intend to use the funds for and how much they plan to invest.

For startups, it is common to seek a few thousand dollars at the very beginning to cover costs such as office rent and marketing. As the company grows, so does the amount of capital required to run it. In addition to the cost of equipment and operating expenses, there may be significant expenses incurred by the company to hire employees, obtain licenses and purchase supplies to run the business. This is where funding becomes an essential part of a successful business plan.

Investors will provide startup companies with a lump sum of cash in exchange for equity in the business. Most angel investors require the entrepreneur to promise to use the funds for the purposes indicated in the investment agreement. It is common for these investors to demand a percentage of the company’s revenue for their services. As with all arrangements, it is essential to fully understand the terms of the funding agreement before entering into a deal. Seek legal advice when considering a capital raise from an angel investor.

Private Funding Sources varies from one investor to the next. A seed investment from a friend or family member may be acceptable to some, while others will not want to take a chance on a new business. Venture capitalists prefer to provide funds directly to start-ups. As the company grows, investors often obtain warrants or other forms of equity that give them control over a company. This is known as a placement option and allows them to receive a stake in the company while offering a guarantee of return. Venture capital firms typically have an extensive list of angel and private funding sources that they use on a regular basis.

Seed & Venture Capital is terms that describe independent, preliminary funding. These sources of funding are offered by both well-established companies and newer companies looking to raise additional capital. Seed & Venture Capital companies generally have agreements that provide early, highly selective access to their capital.

Angel Investor The largest source of venture and angel investor funding is a qualified individual acting as a personal representative of an organization. An individual represents a business in its pursuit of capital raising and has the ultimate authority to make decisions regarding the investment and/or management of that capital. They often have significant experience in the field and can provide an insight into the business that no one can get from a mere business plan. While Angel investors typically require a significant amount of capital, the compensation they receive is based upon the valuation of the business. Angel investors typically have the most influence over a business and are willing to invest large sums of money if they believe in the potential of the business.