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There are many sources you can access to raise
cash for your business. This section discusses the pros and cons
of each source. In addition, this section gives you links to existing
web sites listing angel, venture capital and other lending institutions.
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Sites that have listings of
Angel Investors: |
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Some Angel Investor Organizations: |
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Angel investors are a special breed of investors.
Whereas venture capital firms and funds invest other people's
money in new business, angel investors invest their own money.
Willing to take greater risks, they are the start-up entrepreneur's
best friends. Angels most often assist a company when it may be
little more than an entrepreneurs’ dream. Frequently, they
offer more than money; serving as coach, mentor, and champion,
and often providing guidance from the point of view of one who
has experience turning ideas into fortunes.
Introductions to angels can generally be arranged
by your CPAs, your lawyers, and investment bankers. Note: you
do not need to hire an investment banker for angel money. Since
the amount will be small, any fee they would earn would be negligible.
Thus, under most circumstances, they will give you a list of angels
they know at no cost to you (with the hopes that you will work
with them in the future).
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Sites
that have listings of Venture Capitals Firms: |
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Venture Capitals are a good choice for companies
who are willing to exchange equity in the company in return for
money to grow or expand the business. Venture capital firms often
want a high rate of return(20%+) and will finance the business
with $500,000 to millions. A venture capitalist differs from an
angel investor in terms of wanting greater control of company
and quicker return an investment.
When meeting with potential investors, you will
be pitching your company story to them to get them interested
in you. At the same time, you should be interviewing them to get
an understanding as to whether or not you want to be interested
in them. A quality investor can make invaluable contributions
to your company by helping with key hires, putting you in contact
with key people in your industry, and introducing you to other
investors. This past economic cycle has certainly generated a
lot of horror stories of conflicts between entrepreneurs and investors.
For sure, most of these relationships started out great once the
initial investment was made, but deteriorated when pressures mounted
due to every day business issues. Make sure to interview executives
at companies that your target firm has invested in. Get their
impression on how your firm acted during "the tough times;"
did they roll up their sleeves and help, or did they sit back
and take shots at the company's management.
There are a lot of quality venture firms out there.
Make sure you find the right one for your company.
When pursuing funding from a venture capital
firm or strategic investor it very important that you hire a good
lawyer to assist you in the negotiation of the term sheet and
the final agreement for your funding. The investors are going
to have their lawyers working to get specific terms and conditions
in the contracts that will allow them to maximize their return
on their investment. You need to make sure that these term and
conditions offer an adequate return for you and your team. A top
notch lawyer can help represent your interests here.
Strategic Investors differ from angel and venture
capital investors in that they are less interested in a financial
return and more interested in the technology you are developing
or the markets you are serving.
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Links
to providers of Venture Debt: |
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Venture debt is essentially a loan with potential
equity upside. Here's how it works: Banks and funds extend loans
to start-ups, usually for working capital and equipment. In addition
to charging 9 to 12 percent on the loan, the lender gets warrants.
Warrants permit the lender to get an equity stake in the company
at a later date. So if the company goes go public or is acquired,
the lender could then exercise the warrants to buy shares at a
previously negotiated price and cash them in as part of the sale
or IPO.
In most cases, venture debt funds do not insist
on collateral or require restrictive convenants.
While there are many firms focusing on traditional
venture capital, there are only a few firms that dedicate funds
to venture debt. Here are a few worth noting.
The U.S Small Business Administration (SBA) was
created to help entrepreneurs fund their new businesses. The SBA
provides a variety of different loans for specific situations.
To learn more about what the SBA can do for you, click on the
link above.
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