Omodele Adigun
As you plan to start your own business, how do you know whom to turn to for funding, particularly seed capital?
If you are in the project stage, it is more likely to get investment from a business angel. Because he more likely to help you get your idea from a piece of paper to deliverable goods and or services. Unless you have an angel investor in your circle of family or friends, you should look for individual angels or angel investor networks.
“An angel investor (also known as a private investor, seed investor or angel funder)”, according to Investopedia, “is a high net worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur’s family and friends.”
Wikipedia, an online dictionary, on its part, defines an angel investor as “an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors usually give support to start-ups at the initial moments and when most investors are not prepared to back them.”
But if your business is all set and you need to expand it, you can turn to a Venture Capital (VC) firm.
Venture capital is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth.
The process of finding a VC firm can be rather tedious, so, before pursuing this path, make sure you have everything you need. First of all, the potential of your business. For example, a restaurant can be a great business, but it is very unlikely for venture capitalists to invest in it. That is because VCs are looking to invest big money and in the end to get big profits. And for this, your business has to get to a big market.
Be ready to approach an investor
It is essential to be prepared to approach your investor. How do you do this? You can do this by having
•a rock-solid business plan
•a good management team
•an original product / service
•know how to differentiate it from other similar products / services on the market and justify the invested capital with metric and timelines.
Important things to consider
The stage of your business is highly important, but there are other factors just as important for business investors. Industry and geographical location of your business are the top two.
Some of the most interesting industries for venture capitalists are Internet and Software Services, Industrial Manufacturing, Health and Developing Biotechnology, Space Exploration, Security Defense.
Besides the target sectors, be aware of the geographical criterion. Both VC funds and angel investors prefer to invest in companies located in their area. One good reason for the proximity criterion is the possibility to be present every time important management issues need to be solved.