If you made it past the initial stage of funding (i.e., family, friends and credit cards) and your business is beginning to grow and develop, it is time to begin looking for a greater injection of money. We will be talking about two types of investors who have the financial knowhow and capabilities to provide such an injection.
An angel investor (AI) I is someone who is ready and willing to provide your business with an injection of cash, usually in order to help get the business off the ground and get moving. An AI is not always looking for a way to profit from your business, unlike a venture capitalist.
An AI is someone who is financially sophisticated and has the means to set aside many, many thousands of dollars in order to help start your business. The title “Angel Investor” is not given out to everyone: one must meet the Security Exchange Commission’s (SEC) standards for accredited investors. This includes having a net worth of $1 million as well as an annual income of at least $200,000. An injection might be in exchange for ownership equity, but not always. Sometimes, an AI provides the necessary funds as a form of convertible debt instead.
Unlike an AI, a Venture Capitalist (VC) is someone who is specifically looking for a way to profit from your company. A VC is someone (or can be a group of people in a firm) who, like picking stocks in the stock market, is looking for those businesses that have the potential for tremendous growth and success. If your business is promising, a VC is more inclined to invest in you because the more success your company experiences, the greater the return on the VC’s investment.
Additionally, unlike an AI, a VC is specifically looking to have the ability to influence your company. This could be a good thing or a bad thing. A VC that you believe will have your company’s best interests in mind is worth keeping around, especially if their investment is what your company needs in order to jump into a broader market or snag a stronger foothold within the industry. However, this is your business, so if you sense that you are losing control of your company through interactions with VCs, that may mean it’s time to reconsider your outside sources of investment.
Money does not make the world go round, but money is important when building your business. Remember that people are people, so take the time to invest in the relationships with potential AIs and/or VCs. Make sure you have people who believe in your product just as much as you do AND trust your ability to lead the company well.