Equity Financing: What Are Your Options for a Newer Business?
April 16, 2021 (Investorideas.com Newswire) Finding ways to get money into a business to help start it or sustain it until revenues are plentiful is no small matter. Equity financing is a challenge for any entrepreneur who's got their cap out looking for investors and is wondering what their best options are?
To make things a little clearer, here are some of the different ways to find investors.
Friends and Family
One of the most common ways to raise money is by asking friends and family for investment or a loan.
With family, you cannot replace them, so if you fall into difficulties, it could sour relationships forever. It should be seen as a place of last resort for funding a business (or lending to it). Even if the investment went into the business in exchange for shares, should the company fail, the family member may expect to get repaid regardless.
With friends, it's said that the easiest way to lose a friendship is to throw money into it. Potential mix-ups over when sums will be repaid can also cause strain with long-term buddies who feel like they got the raw end of the deal.
When you're seeking investors, the idea of angel investors will likely come up. These are smaller individual investors that like to deploy investment capital into up-and-coming businesses. The idea is that whilst they're courting a higher risk of business failure for their investments, the occasional huge success will overcome all.
Most angel investors have some business experience – they've often sold a successful business as the source of their capital – yet they won't necessarily understand the industry you're involved in. It's unlikely that you'll get much if any, mentorship from an angel investor. However, they'll want to be kept regularly informed about their investment.
The advent of crowdsourcing is still fairly new. The idea is that many people invest and fund a startup or growing business, rather than a handful of people or organizations.
Depending on what's involved, it's possible to use a crowdsourcing website to offer certain products or other incentives in exchange for different levels of funding or to raise money directly.
Sometimes, it depends on what can be offered that will appeal to people as to whether crowdfunding is a viable option. Other times, it's simply an investing platform.
Other Financing Options
If a business is quite new, then it may have difficulties finding any investors. The newer the business, the less substance a business plan has because it's yet to be tested. This can make skittish investors think twice.
It's then necessary to look at different funding options such as loans and other forms of financing. These involve business lending rather than a direct investment in exchange for shares. If suitable lenders can be found, then it may be more comfortable or preferable than giving away half the farm before you've barely gotten the business off the ground.
Equity financing is an excellent way to secure the funding necessary to propel a business forward when lacking sufficient investment capital. Sometimes, it's the only way to do so. However, it's a decision that you must live with later, so tread carefully.
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