Funding & Investors. So what exactly do these two terms mean? Essentially, a business needs financing to grow, expand, and ultimately succeed. This is where private funding is needed along with capital from a third party. While working with a business owner to find the best financing options possible, funding & investors will also consider the risks associated with such a financial transaction.
A business is considered financially secure when it has a long list of paying customers who have established a long-term relationship with the business. In terms of funding, investors usually look for a business that has a solid track record of success, a strong market share, and a large amount of venture capital. To achieve this, there are two ways to approach capital. One of them is seeking venture capital, which is offered by angel investors or other private funding sources. Another method is to apply for small business startup loans from banks, the Small Business Administration (SBA), or other third-party lenders.
Many entrepreneurs start their businesses by obtaining either one or several loans from a bank. While this method can provide some funding, the high interest rates and lengthy repayment terms often scare many off. For those who are uncertain as to whether or not they should pursue this route, there are alternative financing options available. As mentioned above, investors will also consider the risks inherent in a given business.
Private funding sources provide entrepreneurs with the financial cushion they need to launch and successfully carry out their business. However, there are risks involved in this type of investment. As it is difficult to predict whether or not a given business will generate profits, most private funding sources require a significant risk percentage in order to be invested in. For instance, in the case of a small business startup loan, the entrepreneur may have to pay back as much as 25% of the funds they receive as personal loans. When this happens, funding & investors will often need to wait for several years before they receive their money.
Seed Money & Entrepreneurship – Seed money is a term often associated with early-stage business funding. Seed money provides entrepreneurs with the money necessary to launch their business without the pressure of a financial need. In a seed funding situation, typically a business will attract a substantial amount of funding from at least one major investor. If the business is not able to obtain additional funding from another source, most seed companies wait to receive further assistance until their business has grown substantially in size and demand from potential customers. Seed companies rely on their ability to successfully secure additional funding from multiple sources in order to continue growing their business.
Angel Investors – This type of funding source refers to individual entrepreneurs that provide a business with a line of credit in exchange for a certain percentage of the business. Typically, angel investors are wealthy individuals that have provided seed funding to an entrepreneur in the past in the hopes that the business will succeed. Although some angel investors are focused upon providing long-term funding, other angel investors will focus on investing in a company for the purpose of purchasing a stake in the business. As with Seed Funding & Investors, there are several different types of investments that can be made through the use of an angel investor. These investments typically result in a decreased risk for the entrepreneur but increased opportunities for obtaining future capital for the business.