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Venture Capitalists and Business
Angels
Venture capital and 'angel' investment seems like an attractive
alternative to personal loans - you're asking people to invest
their money in your business in exchange for a share of the
profits. While it can cost you more in the long run, it means
that you won't be borrowing money as a loan that needs to be
paid back whether your business makes a profit or not.
Venture Capital
Venture capital is the 'big' option - you should only really be
looking at it if your home business concept is
technology-focused and would be able to make a bigger profit if
you had access to better hardware. Venture capitalists mainly
look for businesses that have the potential to grow really big
really quickly, but will also want everyone involved to be
experienced and confident.
Approaching a venture capitalist is a lot like approaching a
bank to ask for a loan, except you need to be a lot more
convincing. The person you meet will be a specialist in
whatever industry you're planning to enter, and they'll run a
mile if you don't seem one hundred percent sure of everything.
Make sure you research any venture capital company before you
meet with them, to see what they look for and who their
existing clients are.
Remember that you're being scammed if they ever ask you to pay
anything, and be wary of anyone who insists that they won't
sign an NDA (privacy agreement) before they see your idea -
they might be planning to hand it to one of the companies
they've already invested in.
Be prepared for competition for venture capital funding to be
fierce. Really, the best way to get it is to build a good
version of your business on a small scale and then wait for
them to come to you. Also, you should be aware that accepting
venture capital funding will give the venture capitalists a
significant say in how your company is run. They will try to
force you to grow the company as large as possible, before
cashing out somehow, whether it's a sale or selling shares.
They will, effectively, take over your company and maybe help
you get rich - not too much fun if you're out to start your own
business and get away from the typical corporate way of
working.
Angel Investors
Angel investors are like venture capitalists on a much smaller
scale. They are 'real people' - individuals who will invest in
smaller companies. For home businesses, angel investors are a
much better idea than venture capitalists.
Angels tend to behave more like a business partner. They'll
invest, say, half the start-up funds, and then take a personal
role in the day-to-day running of the business. This contrasts
with venture capital companies, which have a tendency to be
faceless and issue you written demands to be get more
profitable. A business angel brings with them experience and
knowledge as well as money, and they can be a great asset to
your business.
Still, you need to remember that they're in this to make a big
profit - when you build your business with the help of an angel
investor, you need to be able to show to them how they're going
to be able to get twice as much out of the business they put
in, and how soon. This doesn't necessarily mean that your
business needs to grow rapidly, but it does mean that whatever
you plan to spend their money on needs to be some kind of tool
for making back far more than the original investment over a
relatively short timeframe.
Staying Independent
Of course, the best way to stay completely independent is to
avoid accepting any outside investment. If you really need the
funding, though, there are still some ways to take it and stay
as independent as you can.
Make sure you keep at least 51% of your business. However many
investors you have, you need to keep hold of 51%, otherwise
it's not your business any more. Don't feel like you're
entering some kind of big system where you're lucky to be and
you have to play by these people's rules - if you have a
genuinely good business plan, then they're the ones who should
be begging you for the opportunity to invest for such a good
return. If all else fails, you might be able to persuade your
friends and family to invest just as much on far better
terms.
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