Funding is one of the most significant aspects you need to consider if you are planning to start a venture. Fortunately, there are many ways to finance a business.
You can fund your business via bootstrapping, where you use your own money to start a business. But sadly, not everyone can do that. So the most common way to finance your startup is to find an investor.
Investors have the potential to be the lifeblood of your startup. With the right investor, your startup can catapult to new heights in just a few months. However, a wrong investor can do more harm than good in the long run. So, you need to know different types of investors to find the right one for yourself.
Here are some of them:
Friends and Family
The first people you may turn to for help can be your friends and family. They are the ones who know you the most; so by helping you, they are not investing in your business; they are investing in you and your capabilities.
However, your friends and family may not be able to provide you with significant funding unless they are wealthy and know-how lending works.
Other investors may also help you if you ask for financing from your friends and family because their trust is a good sign for business.
Angel Investor
An angel investor, also known as an angel funder or private investor, is a wealthy individual that provides financial backing for small startups or entrepreneurs in exchange for equity in their business.
It can be a one-time investment that can help a business get off the ground and do some work. Angel investors often put out extra money to invest for more potential profits. It means the investment they give to small startups is not included in their investment portfolios due to the high risk this type of investment has.
Venture Capitalists
Venture capital is a form of private equity that startups often seek out for financing. They typically fund small startups with high growth potential in exchange for equity. Unlike angel investors that provide funding from their own pockets, their funding comes from well-off investors, investment groups, and other financial institutions.
However, the help they give doesn’t always come through monetary value. It can be technical expertise or business organizational skills. For private investors, funding small startups can be quite risky, which is why being a venture capitalist is an enticing thing because it can be a source of profit, especially if they lack the knowledge and skills to raise funding.
Investors are typically interested in a business with huge growth potential in the future, so your idea should be strong enough to entice them. Since they will be getting equity from your shares, they have a say on how the business should move forward and other management decisions.
Peer-to-Peer Lending
P2P lending has been gaining a lot of popularity lately. Its main goal is to provide easy funding to individuals. But with time, p2p lending has also become a good source of financing for startups.
The loan amount is often limited to about $35,000, but it varies from one website to another. Most p2p lending websites work with individuals, so you should find one that’s ready to finance startups.
Also, you have to remember that business lending works differently. You must know the answers to basic questions like what is a debtor, how business lending works in general, etc.
Corporate Investor
It’s a corporation that chooses to invest in other companies to earn extra income. In some cases, rather than investing in another company, they incorporate that business into their company, making it their own.
But most of the time, it’s the former. In this case, the investor will seek to purchase some stocks that show potential growth over time.
Final Thoughts
There are many types of investors out there on the market, but they will fall into one of the categories listed types. Investors are a good source of funding, especially for startups. But be ready to give up some equity in exchange for their help.
Also, before you go ahead and look for investors, make sure that you know the basics of how investors work. Not only that, but you should also be knowledgeable on how finances work in general and should answer basic questions like how debt or credit scoring works, etc.
