Angel Investors
Angel investors are wealthy
individuals who will give an
entrepreneur financing in
exchange for a share of equity in the
company. Investment sizes
range, but usually are less
than $1 Million. Angels often times work in
organized groups that screen
deals and invest with each
other, while many invest on their own.
Angel investors are more
serious than the type of
investor you would find in a Friends and Family
Round, but they are usually
less serious than a VC Firm.
Pro: Angels normally have
experience in the industry
and can offer helpful
guidance and introductions to their network.
Pro: Because angels are less
rigid than VC Firms, flexible
business agreements are common.
Con: You can be forced to
give up some degree of
control over your company.
Due to the high-risk nature of angel
investing, angels rarely make
follow-on investments.
Friends and Family
As an entrepreneur, you can
lobby friends, family, and
associates for funding that
is usually invested more because of your
personal relationship rather
than an accurate assessment
of the business plan. The Friends
and Family Round often acts
as a seed investment to get
the business to a point where it
will be able to obtain larger
funding from an Angels or VCs.
Pro: Funding is usually
obtainable quickly due to
your existing relationship.
Pro: Potential exists for the mutual vested interest in the business to bring you closer with loved ones.
Pro: The investment terms are
usually more flexible and
potential exists for numerous
equity or pay back methods.
Con: Immense pressure to
succeed can strain personal
relationships.
Con: Friends and family
frequently have an extremely
limited ability to evaluate
the potential of your business, though they
tend to give advice because
of their monetary stake in
the company.
Con: Friends and family
usually bring nothing more to
the table as an investor
besides the initial capital.
Venture Capital (VC) Funding
Many entrepreneurs think that
VC Funding is the key to
their success. Venture
capitalists are investors who are willing to
put forward a large sum of
money in exchange for equity
in the company, but who only get
their money out once the
business either is acquired
by another company or goes public. VCs
are professional investors
that are all about the money.
They normally look for investments
that can provide a 6X return
on their investment, so you
better be prepared to go big!
Pro: VCs can invest large
sums at once and they can
provide expertise and other
assistance that is helpful in growing
and exiting your business.
Pro: Being VC funded brings
instant credibility to your
company.
Pro: VCs open up doors to a
vast network of individuals
including partners and future
investors.
Con: The term “Vulture
Capitalist” exists for a
reason. VCs are about the
money and will take necessary steps to see a
return on their investment,
including ousting you from
your own company.
Con: VCs may steer the
business in a direction that
you don’t agree with. However,
they are very experienced and may know
something that you don’t.
Bank Financing
Bank loans are the most
frequently sought after
source of financing and can
be pursued at your nearest lending institution.
Bank financing can be tricky
as there are many different
types of financing options and
interest rates to go along with them. It is imperative
to educate yourself about the process and your
options before beginning.
Pro: Banks offer a range of
funding amounts and payback
options to fit your needs.
Pro: If you qualify, the time
to funding is usually fairly
quick.
Pro: If you go the financing
route, you do not have to
give up equity in the company.
Con: Bank loans are very
difficult to obtain and the
criteria is constantly
changing.
Con: The entrepreneur owes
the borrowed money whether
the company succeeds or not.
Con: The large amount of
documentation required can be
tedious and time consuming.
Con: The financing options
can be confusing. If you lack
the knowledge or experience,
you may lock yourself into an
unfavorable deal with poor
payment terms.
To enable your business to get the best chance for financing... you need to have your vision, values, 30 second pitch and business plan together, with a good management team and an understanding how the investor will get a return on their investment.
Government Funding
There are various programmes that will assist you in accessing funding and even match funding on a $ for $ basis without giving up equity.
If you need help with raising capital... look us up on
www.bsi.com.au
