Follow up to Part 1; we’re discussing How To Get A Small Business Loan or Unsecured Lines of Credit That Will Start, Build, or Grow Your Business.
As Theodore Roosevelt said, “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” Remember everything starts here so let us continue first category of financing Equity. In part 1 we covered venture capital and private equity. In part 2 we will discuss angel investors and friends, family, and fools (3 FFF’s).
Angel investors are a more realistic source of funding for most small businesses compared with venture capital and private equity.
– Angels invested $9.2 Billion in the first two quarters of 2012, according to the Center for Venture Research reports.
The right “angel” could really make a difference. For example, some angels come into deals with the ability to pick up the phone, call a friend, and have a big buyer for your product. Sometimes they are well connected and can be invaluable down the road in exiting the business and finding a good buyer. Like venture capitalists, angels sometimes want a voting seat on your company board, expect to have a say inmajor decisions you make, and they will want at least apiece of the business.
– Ever watch Shark Tank on ABC? When is the last time one of the sharks agreed to investin a company and asked for less than 51% ownership?
It’s a great show and there’s some truth in that, but angelinvestors will often take a smaller stake in the business.One of the more popular strategies for angels is theconvertible note. This gives the angel a debt position (sometimes first lien) that will convert to equity at a latertime, at a discounted price set by the investor.
Most owners who take on angel money end up goingpublic, doing a merger deal, or putting the business upfor sale to generate the needed cash. Angel investment can be a good strategy for a business owner with adesire to exit the business in the short term. But pitching investors takes up a sizeable amount of time that you cannot spend focused on building your business.
FFF – Friends, Family, (and Fools)
The “less sophisticated” equity investor can be a good channel for an initial seed round of capital, but a company must be careful in taking investment money from too many non-accredited investors – those with net worth of under $1 million. This situation can lead to lawsuits and the risk of violating SEC regulations if owners are not careful. Despite some of the challenges, it’s a worthy investment segment if managed properly.
This concludes part 2 of the series, Stay tuned for Part 3 of How To Get A Small Business Loan or Unsecured Lines of Credit That Will Start, Build or Grow Your Business. If you would like to read the 16 Best & Most Common Business Financing Options for your Small Business click here.