Arranging small business capital is one of the most critical aspects for small business entrepreneurs in initiating business ventures. This article is a guide for those who are looking forward to learning how to raise small business capital from investors.
Anybody looking to utilize investor capital in his or her business plan must know a little bit about the types of investors available. There is mainly two kinds of investors who do funding start-ups.
● Angel Investors are financially rich people with expertise in certain fields looking to invest in certain start ups along with expertise and guidance if necessary. Angel investor generally invests in the early or startup stage of a business. They particularly care about the passion, commitment, and integrity of the business owner.
● Venture Capitalists are people who normally invest in start ups purely from a return on investment mindset. They provide funds in early and growth stages both. Venture capitalists look for a strong management team, a large potential market and a unique product or service with a strong competitive advantage.
Both the above types of investors look forward to invest in established organizations with tested products and services. However, angel investors are more interested in investing in small start ups than venture capitalists.
Lot many people believe investors are less demanding than financial institutions. However, keep in mind financial institutions are only concerned about repayment while investors look forward not only repayment but also considerable return on investment. You have to provide more or less the same information as you need to furnish in banks.
Both types of investors will show interest in investing only when they find robust and exciting business plans and models.
Here are some tips you must consider before presenting business plans to potential investors:
● Clearly mention how much funding you’re looking for.
● Mention why you need this fund and how your business will benefit from this investment.
● What return on investment the investors can expect from your business?
● What is the payback period for the investors
● What the investors will receive for their support (for example -equity in the company, a role on your board,etc)
● What reporting structure you will provide to keep investors in loop about the happenings of the business and how the money is being spent.
Create a convincing business plan and strategy with support of a strong management team, a strategy convincing enough to earn good profits. Before you develop these, it is going to be a time waste both for you and investors in investment-related discussions.