Arranging small business capital is one of the most critical aspects for small business entrepreneurs in initiating business ventures. This article is a guide for those who are looking forward to learning how to raise capital from investors for new startups.
Anybody looking to utilize investor capital in his or her business plan must know a little bit about the types of investors available. There are mainly two kinds of investors who do the funding for startups.
Ways to Raise Capital from Private Investors
a) Angel Investors
Angel investors are financially rich people with expertise in certain fields looking to invest in certain startups along with expertise and guidance if necessary. Angel investor generally invests in the early or startup stage of a business. They particularly care about the passion, commitment, and integrity of the business owner.
b) Venture Capitalists
Venture capitalists are people who normally invest in startups purely from a return on investment mindset. They provide the fund in the early and growth-stage both. Venture capitalists look for a strong management team, a large potential market, and a unique product or service with a strong competitive advantage.
Both the above types of investors look forward to investing in established organizations with tested products and services. However, angel investors are more interested in investing in small startups than venture capitalists.
A lot many people believe investors are less demanding than financial institutions. However, keep in mind financial institutions are only concerned about repayment while investors look forward to not only repayment but also a considerable return on investment. You have to provide more or less the same information as you need to furnish in banks.
Both types of investors will show interest in investing only when they find robust and exciting business plans and models.
Here are some tips you must consider before presenting business plans to potential investors:
- Clearly, mention how much funding you’re looking for.
- Mention why you need this fund and how your business will benefit from this investment.
- What return on investment investors can expect from your business?
- In addition, what is the payback period for the investors?
- What the investors will receive for their support (for example -equity in the company, a role on your board, etc)
- What reporting structure you will provide to keep investors in the loop about the happenings of the business and how the money is being spent?
Create a convincing business plan and strategy with the support of a strong management team, a strategy convincing enough to earn good profits. Before you develop these, it is going to be a time waste both for you and investors in investment-related discussions.
Editorial Staff at NextWhatBusiness is a team of Business Consultants having years of experience in small and medium scale businesses.