Are you about to start a small company? Is it so that you have a great idea for starting a lucrative venture in a small market? In both situations, you need capital to get started. Until the idea phase, you are expected to invest by yourself, as minimal capital is needed to abstract from an idea, make an initial plan and establish a new official body.
The need of fundraising is felt for product development, testing, patents, sales and marketing. The capital required for these phases is likely to be significant. So, from where should you raise the capital? Well, there are several sources to consider for the same.
Buddies and Relatives
If you are confident that your idea is going to be lucrative, then only you can instill trust in your relatives and friends. It is only then that they will be ready to invest in your business.
Once they are willing to lend you, ensure you give them a profitable deal and get them to sign the standard documents revealing the expected terms, conditions, risks and benefits. After all, they should not feel being cheated in the end.
Also known as private or angel investors, they could be promising sources for startups. They are individual investors apart from your friends and relatives and invest in a new small business. They do so by using their spare cash against a higher rate of return than obtained by a more customary investment.
It is like equity financing wherein the lender gives funds and grabs an equity position. This kind of financing is chosen commonly, as startups lack enough cash or collateral for getting bad credit loans. There are investors who invest significant cash by networking with other co-investors, who are known as super angels.
Seed investors can help you beyond giving capital. They can give insights into the new product or company, which can guide you in the right direction. You can assume that these investors only invest in ventures they comprehend or care about.
To find them, you simply need to build your network. For example, if your idea is related to a new baby-care product, you can easily get investors such as mothers as housewives in your area and ambitious women entrepreneurs running a small company.
These investors truly comprehend your new baby-care product. However, ensure that you reveal the risks for their investment and the attractive opportunities on offer.
Business Plan Competitions
Many organisations such as universities and angel investors conduct business plan competitions the winners of which get a cash prize. So, if you can make good business plans, this can be the ideal source for you.
Although the award is significant, it could be still less for initiating a new startup. So, you may feel it to be a less reliable source. Still, it has its secondary benefits in the sense that you experience the process of improving your business plans and honing your skills. This will then help you to get some real cash.
These are strategic investors who can invest much money without bothering about your geographical location and with an aim to add value to your venture beyond investments. These are basically the operating companies who are willing to invest if you have a compelling idea that can give them operating revenue instead of only an ROI.
However, on the flip side, it can take longer for them to invest, as they are big agencies that usually fear making loss-inducing decisions.
So, which of these investors would you prefer for your next business venture? You should choose them as per your due diligence.