Different Types of Funding Available to Entrepreneurs
There is no such thing as unsolicited funding and that means you should not be in touch with anyone offering to provide you with a funding source unless you are solicited. If they are soliciting, beware of them. It could very well be that they are soliciting for their own selfish reasons. No one will want to lend money if they are only doing it out of greed. Here are some of the ways that people and investors get funding without being solicited.
Business incubators & Seed Companies: Investors often think of these as the same thing but they are very different. Incubators are like early stage venture capitalists while seed companies are focused more on becoming an entrepreneur. Seed companies often have a team of mentors who are willing to help entrepreneurs get their idea off the ground while working with funding companies that act as a clearing house and provide funding for smaller business.
Angel Investors: Angel investors are typically wealthy individuals who give small amounts of money to relatively inexperienced entrepreneurs for the chance to invest in their business. The risks for this type of funding are great so most angel investors require a significant amount of equity. When you are pitching your business to potential angels, make sure that you highlight any tangible assets that you possess. You also need to have a viable exit strategy that will allow you to sell your business when times turn against you. Be prepared to wait up to a year before you can walk away from your investment.
Private Funding: This type of funding involves a grantor providing you with a loan for your business. They are given a preference over another business because they want to see the business grow and achieve success. This type of funding is good for new businesses but can be risky as well. In order to secure private funding, you will need to submit a Request For Proposal along with a detailed business plan. Investors can be difficult to find and in some cases, they may choose to pass on your startup because they feel like you cannot succeed.
Franchisees: Franchisees are a great source of funding. They are familiar with the legal and financial requirements that must be met in order to obtain a franchise. Many investors are also interested in franchises because of the large customer base that they can provide to a company. However, this type of funding requires large upfront investments from the franchisee and may be very difficult to obtain. Most franchise companies do not generate a profit during their first five years of operation.
There are many different ways to get capital for your business. If you have an idea for a successful business, you should consider applying for a loan from an angel investor, a private funding source or a traditional bank. Many mentors prefer to work with an angel investor as they have access to capital that is difficult to find for a business venture that is just starting out. As a rule of thumb, you should research your angel investor prior to your start up in order to determine if they are the right fit for your business needs.