How Startup Funding Work for investors
Many new businesses start out with just one investor and a loan for their business. This is usually the husband/wife/brother/sister of an investor. They may not have the money to start the business. Some investors do have the necessary money to start a business but they lack the time to do it themselves. Other investors simply do not want to put in the time or effort into growing a business. It really doesn’t matter which way you look at it, if you don’t have startup funding, you’re going to be working for your investor’s paycheck for quite some time.
So, if your angel investor won’t provide startup funding, how does an individual like you go about getting a loan from a financial institution? There are many ways to approach potential investors. You could use a pitch deck as a way to sell your business idea. Investors like knowing there is a real person backing your idea.
If you don’t have a business plan and vc (a business valuation) attached to your VB, your first opportunity will be to work with an individual investor to obtain a funding solution through a venture capital or private equity firm. Your investor may also be able to help you obtain seed money from a wealthy relative or friend. Seed money is less than the full equity of the business but still adds up to a significant amount.
Another way is to approach wealthy relatives or friends with an idea for a business. If they are interested and are willing to put in the startup money, this will provide you with the seed money necessary to launch your business. If you can convince them that you are a legitimate entrepreneur, this can be a great source of startup capital. Remember, however, that VCs usually prefer to invest in companies that are highly growth oriented and are well on their way to success. It is unlikely that an older relative would be willing to invest in your startup, especially if they feel you haven’t proved yourself yet.
If all else fails and you have not been accepted into a venture capital or angel investor program, the options are even broader. One common type of investor is a private equity firm. This is where a large company invests in your startup in exchange for a minority share in the company. The advantages of this scenario are that you will have access to the company’s profits and continue to receive regular payments. This scenario works best for businesses that have already proven themselves, have a track record, and/or are large enough to justify investing in.
Small entrepreneurs may also want to consider turning to small business loans or bootstrapping as a means of obtaining startup funding. Bootstrapping is when you initially provide a company with the seed money it needs in order to launch its operations. Small business loans are also referred to as business angels. As the name suggests, these investors provide startup capital to small businesses in return for a percentage of the company’s future profits. These investors typically have an interest in the business and believe that the business has a bright future ahead of it.
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