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Choose the Best Funding Partner for You
We talked about putting you ideas into practice in an efficient manner here and what to expect when you found a start up company here.
After you create a strong business plan, your next step is to find financing to get your company off the ground. So, how do you choose your funding partner?
Look at the figures
VC spending in 2019 is very likely to break all records with $62 billion invested by the middle of the year. On the other hand, angel investment has its own meaningful share of more than $10 billion invested in startups.
Main differences
- Simplicity
Angel investors are individuals who invest their own funds with the purpose of growing a small business (in many cases a startup), also providing business advice and guidance.
Venture capital firms are investment companies that invest the sareholders’ money in startups. The process is more complex than with an angel investor, as it involves the investors, the board, the project managers etc.
- Amounts invested
Given the large amounts invested in the recent years by venture capital firms, startups incline
to look fot a VC firm rather than an angel investor. It is true, a venture capital company usually invests more than $1 million. Given the complexity of the procedures and the risk taken, the investment and the return of investment need to worth the pain.
Angel investors, as a general rule, usually invest up to $1 million.
As these are general guidelines, take time to make your own thorough research when looking for funding. In business, just like in life, it always depends on the individual looking for funds and at the same time on the private investor’s intention, motivation and depth of pocket.
- Playing by the rules
While angel investors are usually less rigid concerning the structure of your partnership, venture capital firms need pre-approved terms and timescales for the project development.
- Why would anyone give you money – The Motivation
The role of VC firms is to find brilliant business ideas, help them expand and make good money. With a private investors, things are a little different, as their reasons might be multiple, such as to share business experience, contribute to educating beginners in their area of expertise and last but not least, of course, making money.
- The role of the investor – Involvement
If you are a beginner in the business world, it is good to know angel investors usually act as mentors. Though keeping in mind this is not their main job, angels will be as hands-on as the startup business needs.
VC has a different approach: they require a seat on your board, to make sure they can be part of the decision-making process and guide the business on the right path if needed.
While both private investors and venture capital firms will have a share of your company, the mindset is different. So choose wisely the one that suits you business and personality.
To sum up, it is always useful to stay informed, to know the rules of the game you are about to play. But remember a common sense and essential pricinple: whoever you choose, make sure they are well-intentioned, well-experienced and as passionate as you are about the business you are about to grow together.