Funding & Investors. The two terms, when used together, can create quite a fog of confusion. As the names suggest, funding refers to financial means of helping start-ups and growing businesses obtain the money they need to grow. The term investors refers to people or groups of people who put their money in startup ventures. While funding and investors can be used interchangeably, it’s important for both terms to be used with some clear meanings that help understand where the funding is coming from and how it is being used.
To illustrate this a bit, let’s use the seed-stage of a startup business as an example. During this early stage, there is little financial backing and investors are not necessarily looking to put their money in the business. However, because of their enthusiasm and excitement about the business, they are often willing to put in their money as long as the business has the potential to make them money in the future. Therefore, this is what is known as seed money.
As the business moves into growth and later is able to produce a profit, more funding is sought. The business’ success is the main driving force behind the growth, but this can also mean that investors require a return on their investment, which drives venture capital. Successful venture capitalists are often referred to as angel investors. Once again, they invest their money in the startup in exchange for a share of the profits and the promise of getting a return on their investment.
In other cases, investors seek venture capital funding for one reason only: to buy out the stake of ownership in the business by another individual or entity. Usually, this happens when the business is valued at a much higher price than the private individual paid for it. In an emerging market, the buyer can acquire a large portion of the stake at a very low cost and then use that money to fund the business when it comes to growing and getting into bigger markets. Venture capital represents a large amount of funding, and this is usually done by wealthy individuals or entities.
Funding for start-ups is something that all entrepreneurs face, but many have little experience. There are a lot of pitfalls that can set an entrepreneur off to a slow start, and the lack of funding can make things even worse. If you’re looking into funding for your business, make sure that you know what the deal is & know all of its pros & cons. If possible, talk to several angel investors to get their perspective on the same.
It is also a good idea to talk to friends, family members, and acquaintances about how they got started in business. They may be able to provide some valuable insight & tips on finding investors, which is important. There are a number of investors who will give you seed money, and there are also a number of institutions & groups who will provide small, short-term funding for your business. Regardless, of how you find funding, having a good plan in place beforehand can help with the future challenges you’ll face as the business operates.