Small businesses can receive funding through sources other than the SBA. Two popular sources include venture capital firms and angel investors. Unlike the SBA, venture capitalists and angel investors do not lend money and expect interest and principal repayment. The money angels and investors provide to businesses are typically for equity or a stake in the company.
Angel investment refers to seed money from wealthy individuals who provide capital to an entrepreneur to help develop a business idea so that it can be launched. An angel investor is a person who provides backing to very early-stage businesses or business concepts.
If you believe angel investment is appropriate for your business, we recommend you check out the Brain’s Guide to Angel Investing.
Venture capital refers to an institutional investor asset class usually for scalable start-up or young companies with exceptional growth potential. Such investors provide money but also managerial expertise, and in exchange, seek profitable return at varying multiples to their investment typically five to eight years down the road.
Venture capitalists are extremely discerning in choosing which companies they’re going to back, and typically only one in 150 business plans they receive at any given time will be funded. Even after being so choosy, many VC investments fall short of expectations primarily because they are investing in unproven technologies, business models or entrepreneurs – sometimes all three.
If you believe venture capital is appropriate for your business, we recommend you check out the Brain’s Guide to Venture Capital.