Funding Your Business: Angel Investors Vs. Venture Capitalists
When you talk about starting your own business on the internet, most people are referring to small, internet based, home start up type deals. But maybe your ambitions lead you in another direction. Maybe you have a great product that you want to get distributed world wide but you need the funding to get off the ground. In that case, you need more capital than simple internet start-ups do.
One way to get the capital you need is to search out angel investors or venture capitalists who are looking at funding businesses like yours. While the two terms are often used interchangeably, and while both are similar in many ways, there is a distinction between the two. This distinction is important as it has a bearing on which group you should approach for the funding of your business.
Let's start with angel investors. An angel investor is an individual or a group of individuals who want to increase their investments by funding start-ups that they believe are likely to be profitable. While angel investors are concerned with investing wisely so that they can profit, they are also interested in helping small, non-established businesses get off the ground. To that end, they are often willing to provide mentorship and training along with the funds to help the fledgling new business owner on his or her way.
Now, let's move on to venture capitalists. I don't know if you've ever seen the show, Dragon's Den on BBC America, but if you have, then you've got a pretty good idea about what venture capitalists are and what they're looking for. Like angel investors, venture capitalists may be individuals or groups of individuals who are interested in investing to grow their own portfolio. Unlike angel investors, they are more interested in going concerns where the risk is less. They're looking to invest in established businesses that need additional funding in order to expand and for which the future financial picture is almost certain to be profitable. Venture capitalists can also offer mentorship but are less concerned with that than are angel investors.
Accordingly, if you have an idea for a business or your business is very new, from days to perhaps a year old, you'd be better off searching for angel investors rather than venture capitalists to get your funding. As I indicated earlier, angel investors are much more forgiving in terms of your ability to prove that your business can make money. As long as your idea is sound and you have a well-thought out business plan, an angel will be willing to fund you.
If, on the other hand, you have an established business, that is a business that you've been successfully running for two or more years but you need capital to grow your business or expand your operation in other ways, then venture capitalists would be a better fit for you.
For either group you must approach them well prepared to discuss your business and how you plan to succeed. Angel investors are more tolerant of initial losses as most startups are volatile. Angel investors and venture capitalists can be located by attending functions hosted by your local Chamber of Commerce.
