Answer
Apr 21, 2018 - 08:16 AM
Getting your business off the ground and taking it to the next level makes securing funds from a small business investor an attractive way to get working capital for the betterment of your business and it's growth.
While you may not like giving an investor a cut of your company, remember that you are asking them to give you money they may not get back.
Before you consider approaching any investors, be clear and precise about the amount of money you need and how much of your company you’re willing to give in exchange for the money to move your business forward.
Note: Never take more money than you can afford to pay back no matter how attractive it may seem at the time.
Taking too much money can often lead to more debt if your business is not properly managed.
Investors usually lend money in exchange for equity in your company, so they’re with you until you sell your business.
(Depending on your business concept and the demand for your product or service, many investors will want anywhere from 15% - 25% share of your company)
One of the biggest advantages of having an angel investor besides the money they bring to your business, is that they’re usually experienced, highly successful entrepreneurs who know the ropes, so they can act as advisers to help you reach your business goals.
Choosing the right investor:
You may feel tempted to take the first business investment offer you receive, but remember, that you need to work with this person for the entire life of your business once the money exchanges hands.
Before you jump, look for investors who have experience in your industry and who get involved with companies at certain stages.
For example, if you’re a start-up, approach investors who understand what’s needed to get a business off of the ground and are comfortable giving capital to new businesses.
(If you find an investor who doesn't fit with your business model or industry, chances are you won't get the full benefits from your investment.)
Partnership Investment:
Another investing option is to take on a partner willing to offer working capital to your company.
Your partner gets a cut of all profits, depending on your operating agreement.
One of the ways out of a deal like this, is if you both agree to sell the business and split the proceeds, or your partner can agree to sell his portion of the company to you (in the form of shares) free and clear.
Then you own his share and do not have to pay a percentage to him anymore.
Keep Percentages Small:
Look for ways to keep the amount of equity or percentages as low as possible when negotiating with an investor.
For instance, ask for a smaller amount of money initially, rather than a sum you feel you’ll need over a few years.
This allows you to give away a smaller slice of your business in exchange for the capital, leaving you with more as owner of the company.
Ask an attorney to look at your funding contract so you truly know how much of equity you’re giving away just to be sure of where you stand with your business.
Hypothetically, let say your contract says that the investment made by an investor is based on an actual valuation, but your own equity in the company vests over time.
Using this scenario, this means that you may own less equity in your own company than you thought, since you have yet to earn your share of the business.
More often than not, investors may not get back anything in terms of money should your business fail.
In some cases, a small portion of the original loan my be recovered by investors, but nowhere near the amount of the initial investment.
While you may not like giving an investor a cut of your company, remember that you are asking them to give you money they may not get back.
Before you consider approaching any investors, be clear and precise about the amount of money you need and how much of your company you’re willing to give in exchange for the money to move your business forward.
Note: Never take more money than you can afford to pay back no matter how attractive it may seem at the time.
Taking too much money can often lead to more debt if your business is not properly managed.
Investors usually lend money in exchange for equity in your company, so they’re with you until you sell your business.
(Depending on your business concept and the demand for your product or service, many investors will want anywhere from 15% - 25% share of your company)
One of the biggest advantages of having an angel investor besides the money they bring to your business, is that they’re usually experienced, highly successful entrepreneurs who know the ropes, so they can act as advisers to help you reach your business goals.
Choosing the right investor:
You may feel tempted to take the first business investment offer you receive, but remember, that you need to work with this person for the entire life of your business once the money exchanges hands.
Before you jump, look for investors who have experience in your industry and who get involved with companies at certain stages.
For example, if you’re a start-up, approach investors who understand what’s needed to get a business off of the ground and are comfortable giving capital to new businesses.
(If you find an investor who doesn't fit with your business model or industry, chances are you won't get the full benefits from your investment.)
Partnership Investment:
Another investing option is to take on a partner willing to offer working capital to your company.
Your partner gets a cut of all profits, depending on your operating agreement.
One of the ways out of a deal like this, is if you both agree to sell the business and split the proceeds, or your partner can agree to sell his portion of the company to you (in the form of shares) free and clear.
Then you own his share and do not have to pay a percentage to him anymore.
Keep Percentages Small:
Look for ways to keep the amount of equity or percentages as low as possible when negotiating with an investor.
For instance, ask for a smaller amount of money initially, rather than a sum you feel you’ll need over a few years.
This allows you to give away a smaller slice of your business in exchange for the capital, leaving you with more as owner of the company.
Ask an attorney to look at your funding contract so you truly know how much of equity you’re giving away just to be sure of where you stand with your business.
Hypothetically, let say your contract says that the investment made by an investor is based on an actual valuation, but your own equity in the company vests over time.
Using this scenario, this means that you may own less equity in your own company than you thought, since you have yet to earn your share of the business.
More often than not, investors may not get back anything in terms of money should your business fail.
In some cases, a small portion of the original loan my be recovered by investors, but nowhere near the amount of the initial investment.
Add New Comment