There are a variety of different resources for funding and investors to tap into, including institutional investors, as well as various investment groups. These groups may include wealthy families, businesses, government agencies, or other financial institutions. Private investors typically seek to fund start up ventures, provide venture capital for start ups, and invest in real estate. Venture capitalists invest in the growing private sector. There is a huge difference between the money given to an organization by its customers as a loan, and the money that goes to the company as funding.
One of the most common ways of obtaining financing is through banks, but this often leads to problems due to the high interest rates. Many people have their personal savings accounts set aside for making a business start up loan, but it can take years to get a bank to agree to such a large line of credit. Most angel investors and venture capitalists are not banks, so they have more freedom to use their funding as they see fit. The venture capitalist will also not require a personal guarantee or even a personal reputation. When funding a start up business, it is wise to research the company thoroughly, as well as any angel investor or private funding sources.
There are also a number of other avenues to consider. Internet businesses are starting to be a viable option, as they have lower overhead and much lower overheads than many traditional companies. In addition, there are several companies on the market that are not-for-profit, yet have incredible products or service. A new type of start up investment called intellectual property can also be secured by some private investors. In this case, the inventor or company leader develops an idea, but has exclusive rights to it, which they secure through a licensing agreement with an investor.
Private equity is another common route for investment, where private equity investors are provided capital by a larger firm, usually in the business sector. This type of investment is not a popular route for start ups, as it tends to bring out the most speculative and greedy types of investors. However, there are a number of highly successful firms that use this method to fund their ventures. It is important to note that the risk for these loans is high, and if the business does not perform as projected, then the venture may need to be sold off in order to recoup some of the investment.
Seed & Early Stage Funding. This is often used for highly experimental new businesses, as they offer greater possibilities for growth and success, but they carry greater risks. Seed & Early Stage Funding generally refers to financing & investors that provide seed money for small businesses. Some of the advantages of this route are that there is less pressure from investors, who generally do not want to take a large risk with something that is still very new on the market.
Venture Capital. Venture capitalists are generally individuals, groups or institutions that pool their resources together to invest in new businesses. They are usually invested in more than one business, so that their risk level is decreased. Because of the large amount of capital required, venture capitalists are usually only willing to provide capital to those businesses which have a solid chance of generating profits. As well, some venture capitalists prefer to fund smaller companies at first, so that they can track their progress and make changes as necessary. However, all investors should keep in mind that these firms do not make up the final decision as to which business will be taken to a public market.