When entrepreneurs are ready to take their business to the next level, they may begin searching for other resources to help finance the leap. The search for funding has to begin within the organization. Is there a solid plan for growth of the business? Has the brand been successful with attracting customers? Are the financials in order? Once these very important questions are answered, a business owner needs a clear understanding of the types of investors that are available and ready to fund the venture.
An angel investor is an individual with a strong net worth who is willing to use their own funds to make an investment. Angel investors have a net worth value of $1 million or annual income of $200, 000 or $300,000 if they are a married couple. Angels generally invest in the entrepreneur who has the business or startup idea and therefore makes the investment early in the life of the business. In many cases, angels will help launch the business and/or assist with growing the business so it will be attractive to venture capitalists.
Venture capitalists, also called VCs, are typically firms or partnerships with individual partners contributing to a fund to invest in businesses. VCs look to make larger investments and seek to bring the highest returns for the partners involved. The venture capitalist's investment will happen after the company has matured and requires funding to expand into the market. Because the goal is to bring profits back to the VC partners, venture capitalists will seek a business that has already experienced some success and has the potential for large growth.
In order to decide which type of investor is better suited for funding, the business owner or entrepreneur needs to answer the following questions:
There are several other questions that need to be answered to know if the startup or business is ready to seek funding from either angels or venture capitalists. Running with an idea is one thing but those who may look to invest in a business want to know that the financials are organized and the business plan has been thought out for five years or more. Pay attention to what other startups have done to attract investors. Consider some best practices for accounts receivable and collections to help get the business ready. Do what it takes to prove that the idea is not only interesting to the potential market but organized and set to grow.