You often hear stories in the business world that tell us how bootstrapping is the best way to start a business. No liabilities, no equity issues, and no debts to pay are the best things about this kind of endeavor. However, we can’t deny that not everyone has the capital for a startup, in the same way that not everyone can buy Bitcoin cash. We can even agree that most entrepreneurs nowadays can only make funds for their startups through loans.
One of the most effective ways of obtaining funds for a startup is by finding investors. Investors give out a lot more resources than just money. They can also give you insights from their experiences, managerial expertise, and sometimes, equipment and office space. But what kind of investors should we look for when building a startup? Here are some of them.
Angel investors, also known as seed investors or simply angels, are high-net-worth individuals looking to back small startups and entrepreneurs financially, typically in exchange for some equity. Although this can seem risky for angel investors, they usually only give out excess money. This type of investment only represents no more than 10% of their investment portfolios.
Angel investors provide more favorable terms than the loans you usually get from banks and lenders. For example, while some lenders, such as CreditNinja.com, offer no credit check loans with guaranteed approval, most would still require a credit check. Hence, it can be hard to find a lender to help with your startup.
With angel investors, you typically don’t need credit checks. It holds true especially if you know them personally, as you can usually find them among friends and family. Some people even find these types of investments through a crowdfunding platform, which usually consists of other angels.
This one is similar to angel investors but on a larger scale. Most of the time, angels come in groups to gain more access to deal flows, lower the risk of investing, increase investment diversification, have more power to control startups, etc. In essence, these groups give more power to angels, giving better terms to startups and entrepreneurs.
Most of the time, they are people who are in the same geographic region and can have members up to 200 at a time. Usually, they focus more on a specific industry, but some are more open to backing up startups and entrepreneurs in other sectors.
Venture Capital Firms
VCs are arguably the most popular among entrepreneurs who are looking for capital. It’s because they are more common than angel investors and can even compete with the large checks angels give. Also, they are usually individuals who already have power and influence in the market you’re going into, which means they have the credibility and the ability to back your startup.
Usually, they are entrepreneurs, limited partners, other VC firms, and investment bankers. They work together by vetting entrepreneurs and startups that have the potential to grow in the market aggressively. They then pick one out and provide funding from limited partners. Additionally, the investment bankers are there to provide the firm with exit options if the startup isn’t what it is.
Family offices are firms investing money directly on behalf of the ultimate principle. That might sound like every investment firm, but their difference from hedge funds, pension funds, VCs, and angel groups is that they are not pooling money from third-party organizations and instead relying on single or multiple family assets.
They are easier to find since many of them are popping out these days. It’s because, in theory, anyone can build a family office if they have the money. Some even set up a family office with multiple assets from other families to pool more capital.
Business incubators are carefully designed programs to help startups and entrepreneurs make their business ideas and projects come true through training and resources. They usually provide workspaces, mentorship, education, and even equipment to help startups take off the ground. It allows the business to grow substantially during the early stages, making them have the potential to be valuable to other investment firms.
If you’re wondering, the difference between incubators and accelerators is that incubators follow a less rigid schedule customized according to the business needs. These programs can be compared to residencies but have the added benefits of education and training. Generally, you can stay in an incubator as long as you need until your startup can stand on its own and find investors for itself.
Looking for ways to finance your startup can be tough. However, instead of seeking out business loans, why not look for investors who are not only more favorable in terms but also give larger funds? But just like lenders, they also have their requirements before they can entertain your idea and give out the funds your startup needs. Nevertheless, if you manage to land one, rest assured that you’ll have little to no worries regarding terms of finances.
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