Funding & Investors Relationship
Investors are the funding source for most small businesses. There are many reasons why a business needs to secure funding. Often it is due to start-up costs, overhead or financial issues and a small business needs help from multiple sources to properly fund their ventures. Investors can provide the funding that a business needs in order to grow and successfully compete in today’s marketplace. Here are some of the ways how investors can be a valuable funding source for your business:
Investors provide start-up capital. A company with little to no capital is not a successful company and is not likely to survive. A company needs to have some form of start-up capital in order to hire employees, obtain necessary licenses and make the business function from the ground up. Investors can provide the funding for a new business needs to hire employees, purchase needed equipment and obtain licenses to operate.
Investors provide secondary funding. Secondary funding occurs when an investor provides startup capital as an investor. This funding is not to be used immediately for operations. Instead, an investor normally looks to make a profit on their investment by holding on to the stock of the business for a period of time. This secondary funding option for businesses is commonly referred to as ‘follow-on’ investing and is one of the best ways to obtain startup capital.
Investors provide seed money. Seed money is typically provided by angel investors and venture capitalists who are primarily interested in the long term success of the business rather than a current profit. An investor usually looks to provide the funding for a new business needs to hire employees, get the products to market and/or obtain a license to operate.
Private investors provide Series A funding. This type of financing involves private investors who are primarily looking to provide a short term cash influx to a business that has proven to be a sound business. These investors typically have a great deal of capital to invest and are willing to take a risk. Series A investors need to be well established within the business community or have a significant influence in the operation of the business to be considered for funding.
Seed and Series A funding & investors relationships can be a very complex and confusing subject. To help you better understand the relationship between these types of capital sources, it helps to have a working knowledge of the different terms. As you learn about the various types of funding and how they fit into your overall business plan, it will become easier to understand which sources are right for you. Remember to ask plenty of questions before any type of capital investment so you can fully comprehend and use it to protect and grow your business.