One of the biggest roadblocks facing start-up companies is the ability to fund their dreams and ideas. There are lots of great business ideas and people who would make great business owners, but the ideas seldom fall on people who have the capital to make their dreams happen. Some people try to create their businesses without large capital to start off but few succeed. When you are looking for someone to lend you the money, where do you go?
You could ask your friends and family for money or you could try to get a loan from a bank. Those aren’t bad ideas, they just aren’t likely to give you as much capital as you need. In order to get enough money, you may need to look to an angel investor or a venture capitalist. You’ve heard these terms a few times in conversation but what do they really mean and how are they able to help you?
Angel investor refers to a single person who is willing to invest in your company. They have to be fairly wealthy because they will be investing their own money. It is a risky thing for them to do so they are going to want compensation, usually in the form of equity or part of your company. They usually won’t or even can’t invest as much as venture capitalists and will only invest in the early stage of a company. Angel investors also don’t usually do too much to help with the company. They may have connections that they can give you, but they will usually stay out of the way. That can be seen as good or bad. If you want someone who will let you run the business how you want to, then this may be the path that you should take.
Venture capitalists are part of a company. When they invest, they aren’t investing their own money, they are investing the companies money which comes from corporations, foundations, and some individuals. This changes the way they view investing in your company. Rather than being concerned about their own money, they are looking after other people’s money. They are able to give much more capital to help get your company off the ground and are known for investing even more money later in the companies life. The responsibility of handling someone else’s money also pushes them to be more involved in the company. They will be there to give lots of advice on decisions that need to be made and things that need to be done. If you aren’t only looking for money but also help, then this might be the path for you.
Whatever the path you take to get the money you need to fund your dream, always be mindful of what you are giving up. Is giving up half your company worth making it a reality. Weigh your options and have fun living out your dream.