Find The Best Funding For You
Author: Gloria Mopotu
For any startup, raising money for the business is one of the biggest challenges and, nowadays, there are multiple options a startup can use to get the funding needed for their business. Lately, startups consider two types of funding; angel investors and crowdfunding. However, both have their advantages and disadvantages so it is important to fully understand how both funding methods work to figure out which one best suits your business best.
When a startup invests with an angel investor, usually the angel investor is a person that has a particular interest in the startup and wants to help expand and develop their business. Normally, these angel investors are well known and require an equity stake in the company for the seed money they provide to the startup. This way, the angel investor can sell the shares for profits once the company becomes profitable.
Not all Angel investors are the same. Everyone operates differently; some choose to operate independently whilst others choose to operate as a part of a larger investment group and, usually, when it comes to how much angel investors are willing to invest in your business, the numbers vary. According to an article by Seedcamp, some startups can get from $25,000 to $100.000 in the early phases. In other instances, angel investors may be willing to invest a lot more into a startup.
Risk Takers: In reality, the truth is that not all startups will become successful, so for an angel investor to invest in the prospects of that business is a huge risk on his/her side of the angel investor. But the good part of this is that, unlike acquiring loans from banks, angel investors fully understand this risk and therefore are willing to take that risk if they believe the startup has the potential to grow.
No Loan, Just Investment: As we already know, angel investors are not the only source of obtaining money to start a business. Loans are another form of funding which requires the business to return the money they borrowed over a certain period of time. Angel Investors, on the other hand, don’t loan money. Instead, they invest in the company for a small profit in exchange.
So Much More: Besides having the resources to fund a startup, angel investors are also accredited entrepreneurs with years of experience partnering with startups so apart from just sponsoring a startup financially, angel investors are also good mentors for startups which is essential and beneficial to the growth and success of the startup.
Angel Investors Requirement: When angel investors invest in your business they require a certain amount of equity in exchange for the money they invested. So not only do angel investors get a certain percentage but they also have the power to make some decisions in your business and as long as they are investors, that cannot change. In the end, this could potentially cause friction and conflict between the startup and the investors.
The Downside: With a large amount of funding that investors give to startups, the need to succeed is crucial and in most cases investors tend to put a lot of pressure on these startups to perform and get the results they need to ensure the growth of the business. This pressure can sometimes be a lot to handle and uncomfortable in most cases but one that the startups have to see through.
Since its inception, crowdfunding has become a popular way to get funding for your business. Startups use crowdfunding to get money for their business through online platforms. Both accredited and non-accreditors investors have the ability to invest through crowdfund- ing platforms.
Visibility: Through online platforms, startups are able to market and promote their business as marketing tends to cost a lot of money. Moreover, when a crowdfunding campaign is funded relatively quickly, it spreads the news of that startup so it can get the attention of many. In essence, this can help increase the visibility of the startup and attract the interest of other investors.
Attracting Investors: By giving startups the opportunity to pitch their business online, catching the eye of potential investors in a lot easier as it would be getting an angel investor.
Insufficient Funding: Sometimes the money startups can acquire from crowdfunding may not be enough for the business and may find themselves having to seek angel investors for assistance to obtain money they coldly fully get from crowdfunding.
Fees: Crowdfunding platforms are focused on connecting investors with startups, but they’re also in a business to make money. Startups who use these platforms can expect to pay anywhere from 5% in fees to raise the money they need, which can detract from the amount of capital they have available.
When looking for funding, don’t just look for money, look for the right people. Irrespective of the disadvantages that crowdfunding and angel investors may have, that doesn’t mean they are not a good source of funding. It is just a matter of deciding which source of funding is the best fit for your company. At the end of the day, the most important thing is to have the right people in your corner who will not only invest in your company financially but who will also mentor you and give you the best support necessary to grow your business.