Raise Small-Business Capital with Investor Capital - dummies

Raise Small-Business Capital with Investor Capital

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

If you decide that you want to use investor capital as part of your business plan, you have a few things you need to consider. Major capital investors fall into two categories:

  • Venture capitalists are professional investor groups whose major motivation is return on investment.

  • Angel investors are successful and wealthy entrepreneurs who invest in up-and-coming companies with their money and also with their expertise and guidance.

Both types invest in established companies with proven products, markets, and business models, but angel investors are more willing than venture capitalists to entertain smaller investment requests and to invest at an earlier stage in a company’s life cycle.

Whichever approach you decide to pursue, when you’re trying to raise capital through investors, you need to present much of the same information that bankers require — and then some.

Whereas bankers want to know how you’ll repay them, investors want to know when and how they’ll see not only a repayment, but also a sizeable return on their investments. How does being an established business influence investors when you’re asking for money? Both types will only fund existing businesses with established plans. As you make a proposal to investors, be sure to cover the following points:

  • The amount of funding you’re seeking

  • How you’ll use the funds and what impact the investment will have on your success

  • What return on investment the investors can expect to receive

  • When the investors will get their money back

  • What the investors will receive for their backing (equity in the company, for example, or a role on your board)

  • What reporting you will provide to keep investors informed about how you are spending their money

Now more than ever, venture capitalists and angel investors want to see that your idea will provide a return on their investment.

Don’t waste your time or theirs unless you’re certain that your executive summary and business plan can convince them that your business idea is unique and timely with a large and growing market; that you have proven personal leadership abilities; that your management team has strong and relevant expertise; and that your strategy is capable of delivering impressive sales and profit margins.