When it comes to raising money for a startup, many people think of venture capital funding. However, the chance of getting funded by a venture capital firms is slim and the process is very often frustrating.
There are some excellent alternatives to venture capital that you should also explore in your search for funding sources. One such alternative is an angel investor - a term for an investor that takes you under its wing and lifts you up to the next level of growth. Angel investors typically do not have deep pockets so the average investment tends to be smaller than that of a VC, typically hundreds of thousands of dollars rather than millions. For a small business, this is more than enough.
Unlike VC funds, angel investors do not have a certain investment criteria. While most VC funds need to abide by their investment guidelines in terms of which locations and which industries to invest in, angel investors can invest in all kinds of businesses. An angel investor can invest in a local restaurant, a real estate project, or an Internet startup. This means opportunities to small business owners like you.
Since the money you receive from an angel investor are usually not large, for that amount of capital, proceed with caution if you're considering giving up some control over your company. For instance, it may not be wise to give a Board position to an angel investor who does not necessarily have the time, experience or expertise to make a significant contribution to your company.
You might also consider a strategic investor partner in place of a VC investment. This could be a vendor, customer, or other business partner with whom you're currently working, who might be interested in investing in your company. A strategic investor often has deeper pockets than an angel investor, but typically has a specific reason for investing in your company - make sure you know the reason behind the investment. The investor may only want to leverage your technology for its own purposes, which could have a negative impact on your business. Or, the investor may want a licensing distribution agreement if your company succeeds, which could benefit you. Make sure your interests are aligned.
Before you approach a potential investor for funding, examine your goals. How much capital do you need? Do you want passive or active investors? Are you looking to ramp up your marketing efforts? Grow your management team? Does your Board of Directors need more seasoned expertise? Answering these questions for yourself will help you decide whom to approach for investment capital, whether that be a VC, angel investor, strategic investor, or other.
This excerpt is part of 'Venture Capital 101', which is ranked #1 in Google search. You can visit www.MyCapital.com to download a complete guide.