Most people dream of having a business instead of working for a company. However, not everybody is fortunate enough to have the necessary funding for a startup business. Nevertheless, if you feel that you have a marketable concept and can generate a good profit stream, then go ahead and start your own business. There are different ways to get the funds you will need to start and keep your business running, including asking your family, seeking an angel investor, and getting early stage VC funds from venture capitalists.
Getting Investment Capital from Family and Friends
If you plan to start a business, you will most likely approach resources closest to you, including friends and family who are willing to invest. While this approach may be a good idea, you may end up creating awkward relationships, especially if your business fails. Moreover, you may not refuse them if they want to get more involved in your business.
Seeking an Angel Investor
You can also seek an angel investor to give you funding to start your business. An angel investor is a person who believes in your business concept and is willing to give you the funding to start your business. Most often than not, an angel investor will ask for a percentage of ownership in your business. The amount of percentage will depend on how much they are investing in. There are times when you can work out an agreement with an angel investor for you to have sole ownership of your business after you paid off his or her initial investment with interest.
For first time entrepreneurs it might be a good idea to hire a consultant to help with fundraising. These professionals usually work closely with Angel Investors and VC firms so they know what kind of startups are more likely to rise funding and will help your business to prepare for your first investment round.
Working with Venture Capitalists
Most often than not, the funding that you obtained from family, friends, and angel investors may run out during the early stages of your business. This problem is good to have because it means that your business needs more money to expand. For example, your business gained more customers, and you need more money to fill in the inventories to complete pending orders. When this happens, the best course of action is to approach venture capitalists. Venture capitalists specialize in investing in startup companies to get a large pay-off when the company becomes successful. While most venture capitalists only invest in businesses that already have a track record of good sales, some will agree to give early stage VC funds to businesses even if your company is still at the startup stage.
Advantages of Working with Venture Capitalists
You should get excited if venture capitalists are willing to give your business early stage VC funds because it will mean that they believe in your business concept and take risks with you to make your business successful. Likewise, getting funds from a venture capitalist is not like taking out a loan. When you work with a venture capitalist, you work with them to get your business to a level at which both you and the VC will be earning money. Likewise, VCs are well-connected in the industry you belong to and may open important doors for you.
How Venture Capitalists Work
Venture capitalists will give you the necessary funds to keep your business running successfully. In return for the funding, they will ask for a percentage ownership of the company depending on their investments. Venture capitalists will protect their investments and look for a strong ROI, which means that you will have to work hard to make your business successful when you work with VCs. This situation will be a win-win for both of you. However, when working with venture capitalists, make sure that you do not give them over fifty-percent of your business if you still want to retain its ownership.
So, if you have a business concept that you feel strongly about, then seek a venture capitalist and pitch your concept to them.