When it comes to setting up a startup or a small business, it is not uncommon for people to look for investors. After all, rare is the person that has both the idea and the funding necessary to start a business on their own. But, if you were to start a business, what kind of an investor should you work with? And, if you do find one that suits you, how should you set up your relationship? Well, to have a better understanding of these financial matters, let’s take a look at the most important things you need to know about private investors for startups and small businesses.
Understanding private investors for startups
Once you start looking for funding for your startup, you will see that there are a lot of options.
Many people like to use their money to develop new business and ideas.
And, among those people, there are some major differences in how they choose to provide funding and what requirement they bring with it.
Now, for most businesses, private investors are the best way to go.
But, there are certain instances where using a different funding source can be more beneficial.
Private investors and venture capitalists
If you are thinking of starting a new business that is closely connected to an existing one, private investors are the best way to go.
Let say, for instance, that you are considering starting a new restaurant. Who should you ask for money?
Well, as it turns out, getting financial help and advice from someone more experienced is the best thing to do. This is what private investors are.
They are a group of people that have experience in an area and that are looking for new ideas to develop.
They not only provide funding but also provide advice and tips which can be quite beneficial to less experienced people.
Working with private investors for startups and small businesses is often the best way to develop your business idea.
Venture capitalists, on the other hand, are usually not interested in your niche.
They are a group of people that are simply out to make money.
And their only concern is how reliable your business venture is and how well it is growing. Therefore, people usually don’t look for venture capitalists.
They are the ones that find growing business and negotiate for buying a stake in the firm.
Angel investors are quite similar to private investors for startups and small businesses.
The major difference is that they tend to require a larger degree of control in business development.
The best way to look at Angel investors is that they are people who put all of their eggs in one basket.
Private investors, on the other hand, usually spread their investments in multiple businesses that seem lucrative.
This allows for private investors to leave more control in the hands of business owners since:
- They are not committed to a single business venture, which leaves them more room to make mistakes.
- They cannot possibly invest themselves to the same degree as an Angel Investor as they simply could not have enough time.
This, of course, can vary from case to case as some Angel Investors can be quite off hands.
But, as a general rule of thumb, if you plan on getting an Angel investor, expect them to participate.
The more successful your business is, the easier it will be for investors to back off.
GoFundMe and Patreon
One of the modern ways of funding your startups is with online funding services like GoFundMe or Patroon.
If your business is mostly digital, you can opt for this kind of funding. This makes running your business much easier as you will have a large degree of freedom.
This makes things like transporting your office goods in no time much easier.
But, keep in mind that there are drawbacks to it, as you will have to convince hundreds, if not thousands of people to support you in order to have enough funds.
Working with small business investors
Ok, so now you have a better idea of what kinds of funding are out there.
Let us now take a look at how to properly work with private investors for startups and small businesses and which mistakes you need to avoid.
Determining the amount of necessary funding
The first thing we would advise you to do, before working with a business investor, is to carefully consider the amount of funding you need.
The general rule of thumb is to carefully outline all the expenses you think you’ll have and sum them all up.
Then implement one of the business tips for beginners, and add 50% of the total cost to them.
This extra funding is to mitigate all the mishaps and oversights that you are going to experience.
And trust us, even with experienced professionals advising you, you are going to experience a lot.
So, leave yourself enough room to correct your mistakes and start your business properly.
What is an investor looking for
At the end of the day, any investor is only looking for their investment to pay off.
Keep in mind that they are not doing you any favours, even if they present it as such.
Their sole interest is to make money through the success of your business. So, it is up to you to ensure that this happens.
Know that even if they seem disappointed or angry at times, all of that will go away if you manage to make their investment worthwhile.
And all the niceness and support will vanish if you fail to do so.
It’s up to you to make a solid business plan and see it through.
Knowing how to communicate with private investors for startups and small businesses is as important as figuring out your funding.
Keep in mind that you will have to explain why your business is lucrative for their investment.
But, also, you will have to set boundaries so that they don’t ruin your business with unnecessary meddling.
Overall, you need to listen to their advice but stay in control.