You have a great idea for a new business – maybe you want to open an antique store or start your own PR company- now all you need is the money to get it up and running. How will you market your idea to investors? Where does the money come from to get you started?
The investment money for start-ups is called “venture capital” , referring to investments in new businesses that entail greater risk of losing money and more uncertainty of a return on investment than stocks or bonds. So who are these venture capital investors and, more importantly, how do you find them?
There are three different kinds of venture capital investors who fund new businesses in three different stages of the company’s life:
Friends and family. These are the investors who give you money when there is no product or service, no revenue and, sometimes, only an idea for a company. The founders’ friends and family members give them money based solely on their faith in the idea of the company, offering their money, knowing they will lose it all if the business doesn’t pan out.
Angels. You’ve created a business plan and a financial forecast and are now close to launching your business. Many founders start to run out of money at this point, as the funding needs become greater than friends and family members can or are willing to provide.
Enter the angel investor. Angel investors provide the funding needed to take the business to the next level, namely when greater amounts of capital are needed to reach full development and profitability.
Angel investments can range from $10,000 to over $1 million when grouped together into angel organizations.
Venture capitalists. These are investors who raise money for businesses and offer advisory services during the term of their investment. They are, most often, professional investment firms that raise capital from individual investors, corporate and public pension funds and many other institutions, in exchange for stock or ownership in your business.
These firms invest $2 million to $5 million in companies that have reached a certain target market, have a proven commercial concept and a revenue stream.
If you’ve ever had an idea for your own business but had no idea where to raise the funds, hopefully this will help you get on track.
