Cash flow is often one of the major concerns of an entrepreneur, and at a certain point, the choice is to raise capital, or close up shop. But not just any capital, or type of capital, will do the trick. Look past the flashy invitation of the wrong type of investor waving dollar bills in your face if you want the best chance of future growth and success.
1. Funding Source Should Match Your Needs
Just because an investor has capital to invest is not a good enough reason for you to accept it for your startup. Like pricking a balloon, picking the wrong financial partner can have a detrimental effect on enthusiasm and energy.
2. Knowing Your Options
Different types of investment options are available, and not every option will be right for you or your startup.
• Angel investors: These are individuals with high net worth, interested in achieving high returns from either startup companies or private placements. Angel investors will often act as venture capitalists for startups needing smaller amounts.
• Private Equity (PE): There are a lot of different types of investments that can fall under this category. Most often PE involves privately-owned companies or high net worth individuals that invest, provide funding for a specific project, or buy a company outright.
• Venture Capital (VC): If you think your startup has exceptionally high growth potential, a VC arrangement may be appropriate. Often VC’s will also provide business support, but they’ll often also take extensive investor rights.
• Government Investment Programs: Government-sponsored programs may also provide startup capital solutions, either in grant or loan form. For example, the US Small Business Administration’s Small Business Investment Company (SBIC) works with private investment funds to help American small businesses with growth capital needs. Expect restrictions with respect to size and type of suitable investments, along with industry and geographic qualifiers.
• Crowdfunding: Take to social media and the internet and any other form of marketing you can think of to raise capital from the crowd. There are several different forms of crowdfunding, and this can be a good option for entrepreneurs who wish to raise money from the crowd. Crowdfunding isn’t just for small dollars and gadgets. Companies can raise millions of dollars from crowdfunding for real projects, such as real estate development, automobile manufacturing plants, etc.
3. Knowing What You Want from Investors, and Vice Versa
Do you want investors that are going to take a hands-off approach, or ones that roll up their sleeves and get to work? Answer that question for yourself, first, and then be prepared to take a list of questions to potential investors. What is their area of focus? What are their most recent investment projects? What do they expect of CEOs? How involved do they expect to be?
Not all investment opportunities are created equal, and not everyone will be right for your specific entrepreneurial needs. Be discerning now and reap the benefits of a well-matched funding arrangement.
For confidential, fast and secure assistance with verifying that your investors are accredited, as required by law for generally solicited capital raises relying on Rule 506(c) exemptions, turn to the pros at VerifyInvestor.com.
