SolveYourProblem
Article Series:
Start
A Home Business
Venture
Capitalists and Business Angel Investors
by Jeff Cohen
Venture capital and ‘angel’ investors seem
like an attractive alternative to personal loans as you are
asking people to invest their money in your business in exchange
for a share of the profits. While it can cost you more in the
long run, it means that you won’t be borrowing money as a loan
that needs to be paid back whether your business makes a profit
or not.
Venture Capital
Venture capital is the ‘big’ option – you should only really
be looking at it if your home business concept is technology-focused
and would be able to make a bigger profit if you had access
to better hardware. Venture capitalists mainly look for businesses
that have the potential to grow really big really quickly,
but will also want everyone involved to be experienced and
confident.
Approaching a venture capitalist is a lot like approaching
a bank to ask for a loan, except you need to be a lot more
convincing. The person you meet will be a specialist in whatever
industry you’re planning to enter, and they’ll run a mile if
you don’t seem one hundred percent sure of everything. Make
sure you research any venture capital company before you meet
with them, to see what they look for and who their existing
clients are.
Remember that you’re being scammed if they ever ask you to
pay anything, and be wary of anyone who insists that they won’t
sign an NDA (privacy agreement) before they see your idea –
they might be planning to hand it to one of the companies they’ve
already invested in.
Be prepared for competition in venture capital funding to
be fierce. Really, the best way to get it is to build a good
version of your business on a small scale and then wait for
them to come to you. Also, you should be aware that accepting
venture capital funding will give the venture capitalists a
significant say in how your company is run. They will try to
force you to grow the company as large as possible, before
cashing out somehow, whether it’s a sale or selling shares.
They will, effectively, take over your company and maybe help
you get rich – not too much fun if you’re out to start your
own business and get away from the typical corporate way of
working.
Angel Investors
Angel investors are like venture capitalists on a much smaller
scale. They are ‘real people’ – individuals who will invest
in smaller companies. For home businesses, angel investors
are a much better idea than venture capitalists.
Angels tend to behave more like a business partner. They’ll
invest, say, half the start-up funds, and then take a personal
role in the day-to-day running of the business. This contrasts
with venture capital companies, which have a tendency to be
faceless and issue you written demands to get more profitable.
A business angel brings with them experience and knowledge
as well as money, and they can be a great asset to your business.
Still, you need to remember that they’re in this to make a
big profit. When you build your business with the help of an
angel investor, you need to be able to show to them how they’re
going to be able to get twice as much out of the business they
put in, and how soon. This doesn’t necessarily mean that your
business needs to grow rapidly, but it does mean that whatever
you plan to spend their money on needs to be some kind of tool
for making back far more than the original investment over
a relatively short timeframe.
Staying Independent Of course, the best way to stay completely independent is
to avoid accepting any outside investment. If you really need
the funding, though, there are still some ways to take it and
stay as independent as you can.
Important: make sure you keep at least 51% of your business.
However many investors you have, you need to keep hold of 51%,
otherwise it’s not your business any more. Don’t feel like
you’re entering some kind of big system where you’re lucky
to be and you have to play by these people’s rules. If you
have a genuinely good business plan, then they’re the ones
who should be begging you for the opportunity to invest for
such a good return. If all else fails, you might be able to
persuade your friends and family to invest just as much on
far better terms.
# # # # # SolveYourProblem.com : 2007
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