Many companies who are just starting out need start up capital (some people called it seed money). Unless you have rich (and patient) relatives this can be a very difficult commodity to acquire. So too, going to a bank and getting a small business loan is a pretty daunting task and some business (restaurants and construction companies) are not very appealing to bankers in general; restaurants because the failure rate is so very high, and the construction business because of all the intricate workings of the business. What many beginning owners tend to look for is either a Venture Capital company or a Business Angel. Before you start your search (it might even be rightly termed a quest) here are some things to consider.
Venture Capital companies tend to look for “hot” industries or industries that have very high payback potential. In the past few years industries like Bio-Med, Medical Robotics, and the like have been very popular. Most Venture Capital companies avoid investing in stage one or the seed money stage. From their long experience, they’ve seen can’t miss products, miss. In fact in some cases they have watched the product fail miserably, and they lost their investment. Another thing very important to venture capital companies is their exit strategy. A VC companies business is much like a bank, loaning money (and over sight) for a project, but while they are willing to give a promising business a leg up financially, they are not wanting to own that business long term-usually they like to be involved for 3-5 years and then be bought out by the owner. This is called the exit strategy, and every Venture Capital company has one and a general time table target for payback.
A business angel can vary; many business angels these days have an association (and a front man) to screen potential businesses. Like a Venture Capital company, they provide funding and over site, but might be willing to be a long term partner of your business, or be willing to buy the business from you at a certain stage. As the entrepreneur, you must fully research the particular business angel and decide if this is a long term partnership that you are going to be compatible and consistent with you long term goals. Make sure you have a trusted lawyer read the contract!
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