One of the most difficult challenges for startups is looking for funding. Bootstrapping is a good way of obtaining funding without incurring debt, but it’s at the risk of tanking your credit score. Undoubtedly, funding a business is expensive. Unless you’re a rich person looking to start a business, bootstrapping isn’t a problem.
That said, if you’re looking to broaden your horizons, one of the things that you should look into is investors. There are several types of investors you could reach out to and obtain funding. However, you should note that investors don’t fund startups for free. There is always a catch for business dealings, after all.
With that in mind, here are the types of investors you may meet when obtaining funding for your startup.
This type of investor is usually connected to you personally, as they usually come from your family and friends. Even though they are closely related to you, the funding is usually very limited unless one is a high-net-worth individual.
However, you should be wary when mixing business with familial matters since it tends to get complicated quickly. One common example is when your family member or friend starts asking for personal favors in return for their investment.
Online lending has been a popular way for new business owners to get the funding they need. It’s fast, easy, and accessible, allowing businesses from various industries to benefit from it. But aside from getting the best CreditNinja online loans and funding options from other online lending platforms, you can also turn to Peer-to-peer lending for your funding needs.
Peer-to-peer lending, or P2P, is a startup listing you can find online. These sites help startups and new entrepreneurs connect with potential investors and be a platform of communication between both parties. Two of the best examples of P2P lending sites are Lending Club and Prosper.
So how does P2P lending work, exactly? Basically, they let the two parties communicate without needing paperwork and documentation. This way, the two parties can negotiate directly without the interference or fees banks usually have.
Angel investors are probably the ones that you’ll most likely know about first when you’re researching funding. These investors put up money for new entrepreneurs and startups looking to take off from being a business concept to a fully-fledged company.
But what is an angel investor? Simply put, an angel investor is a high-net-worth individual looking to diversify their portfolio through investing in budding businesses or new entrepreneurs.
Angel investment is more like a one-time investment for startups. This means they don’t dwell too much on the business and will pull out someday to look for another. So how do they work?
Angel investors usually give off funding for the startup in exchange for a small piece of equity. Not only that, but they could also invest in office spaces and even small buildings for startups. Once the business takes in profits and is holding up steadily, they will let you buy their share of the company so you’ll have full equity.
Venture capitalists are for startups that are rapidly getting bigger in a short amount of time. This type of investor expects you to have a solid plan and grow your business in the future. And, of course, venture capitalists would expect the startup to have huge profits quickly.
That said, once you’ve proven your business to be hugely profitable, they will invest more money for funding. Sometimes, it can even get to millions. Not only that, but they would also likely give your business office spaces and even buildings for expansion.
Of course, this is all in exchange for a part of your equity. However, unlike angel investors, venture capitalists usually stick around for longer instead of leaving after a short time. If they like the business enough, some members of the venture capitalist group would even try to have more equity in your business.
Venture capitalists are a group of high-net-worth people looking to invest in new businesses. Take note, however, that venture capitalists nowadays are looking more into technology-based startups.
Big corporations tend to want to expand by supporting a budding business. Of course, corporate investors have great benefits that they can give to your business. This consists of them helping you diversify your assets and offer great talents and capital funding. Most also invest in accelerators and incubators for startups that help them take off in the industry.
However, they can be unique to work with. They usually offer integration in sales channels, systems, customer bases, and even marketing. That said, before you engage with corporate investors, you should weigh the pros and cons first.
Getting financing for a startup is a huge challenge. So, if you’re willing to share a part of your business equity, investors are a huge asset you can hold on to for capital funding and other resources. Each type of investor discussed above has pros and cons, so you should do your research first.