Types of Funding & Investors
It is not easy for an individual to look for a private funding source. Most of the investors know what they want to invest and what kind of security they want. Therefore, it becomes more difficult to obtain the fund in the earlier stages.
For the purpose of meeting the needs of the investors & funding for their small business development projects, several organizations are offering various types of capital. However, not all of these options are applicable for every type of organization. Moreover, the choice of an appropriate private funding & investors must be made only after careful evaluation of the financial returns on investment. Private funding can be obtained either by soliciting funds from existing investors or from any other source such as family, friends, financial institution, etc.
Private funding can be obtained through different sources such as angel investors, venture capitalists, etc. Earlier, people used to believe that sole use of private funding sources will give the best results. However, today several organizations providing private funding have started investing in new companies through sale of shares to the investors’ groups. Therefore, this option is now being used by a wide range of investors. The investors’ groups are also formed by the companies during their expansion stage and help the companies to get monetary assistance.
There are several ways in which the companies and individuals can obtain a private funding source. Most of the investors’ groups provide a complete range of such funding options for both growth and investment purposes. For instance, they can provide funding in the form of line of credit, preferred or common stock, convertible debentures, preferred or common stock dividend payment, subordinated debt, etc. In order to locate a private funding source, the finance company will need to check various documents relating to the credit history of the individual, current business and investment objectives, future business plans etc. Many private funding sources provide guarantees to the investors against the investment or return of the invested funds and therefore are not as risky as corporate sources.
There are several funds which are offered by various private funding sources. For instance, there are some funds which are provided by the venture capitalists. These funds are usually meant for early stage companies or those with limited scope. As compared to the angel investors, these private funding groups provide greater personal and capitalistic return. Nevertheless, they charge a much higher amount of fees. As these funds are difficult to locate and require a long term commitment, most of the startups prefer to raise money through capital markets.
The most commonly used way of obtaining funding in the form of small amounts from private funding sources is through sale of company shares to the investors’ groups. However, this form of funding generally depends upon the current share prices. Small cap fundraising is comparatively simple and is considered as the safest method of obtaining start-up funding. Therefore, in case of any difficulties or uncertainties related to start-ups, it is better to seek help from the private funding sources.