Get capital from family and friends
A good place to start an early stage business is to ask friends and family if they are willing to invest in your company or if they will lend you a lump sum. All you need to do is agree to pay it over a period of time and the interest added above, so the loan may be easier to set up. Interest rates can be significantly lower and faster processes than borrowing from a bank or another lender.
Alternatively, if you go down the investment route, your friends and family will hold shares in your company. This means that investors will only get the money if the company is profitable, so they don't have to pay anything back. On the other hand, if your business is not successful, investors can lose money.
Whichever option you choose, it is important to create an official written contract so there is no misunderstanding. When choosing an investment option, it is important to emphasize the risk, but if you are taking out a loan, you should state what will happen if you can't pay it back.
Looking for private investors
Private investors are individuals willing to invest their money in your business. In return, they can usually receive shares in the company and have a say in how they do it.
There are two main types of private investors. I'm an angel investor and venture capitalist.
An angel investor, or business angel, is a wealthy individual with money to invest in a business. They usually prefer to invest in startups and early stage businesses. However, they need to be confident in the success of your business, so they can create a solid business plan and show that your business has high growth potential.
Read more: A guide to searching for Angel Investors.
Angel investors are usually experienced entrepreneurs. This means not only providing funding, but also providing invaluable skills, expertise and contact information for your new business.
Venture capitalists, on the other hand, don't invest their money, they're not investors. They do this by establishing a fund that others will use to purchase shares in the company. They can help startups, but they usually invest in companies that are already established and are looking to expand or launch new products or services.
Venture capitalists usually invest more money than angel investors. The return on investment is usually much higher.
Read more: A guide to searching VC fundraising.
Please contact similar businesses and schools in your field
If you know people in a business similar to you, it's worth contacting them to see if you know people who may be interested in investing in your company.
However, please note that this can be a very elicited process as you may need to contact multiple people or attend industry-related events to expand your pool of potential investors.
Another option is to look at schools offering diplomas or degrees in your field of work. Some of the professors who teach there may be willing to contact you with some of the guests they invite to talk about a particular subject. If they can set up a referral for you, this may be another opportunity to invest.
Watch crowdfunding
Crowdfunding is another potential option to explore. This allows businesses to collect money from many people (the “crowd”) through online platforms. As outlined below, there are several different types of crowdfunding platforms.
Reward-based crowdfunding
This type of crowdfunding forces investors to get relatively small amounts and receive rewards in return. Often, this is a product or service offered by the business. For example, if a business makes clothes, everyone who invests a certain amount of money might receive a branded T-shirt. Rewards can also include exclusive invitations to the event.
Donation-based crowdfunding
In this case, the money given will not be returned. Donations are usually relatively small and the money generated is usually due to the project. For example, it could be to give to families who have experienced losses or to communities who need medical assistance.
Debt-based crowdfunding
Debt-based crowdfunding is also known as peer-to-peer lending. Here you will receive money in the form of loans from a large number of private investors who may be individuals or businesses.
Peer-to-peer lending matches the money to lend to the person you want to borrow. Interest rates tend to be better for borrowers to eliminate the need for financial institutions such as banks, but investors can usually earn higher returns through their regular savings accounts.
Equity crowdfunding
Equity crowdfunding usually means investors receive shares in the company in return for their investment. This means that if the company works well, they will receive a share of profit. The investment tends to be thousands, but there is no guarantee when it comes to returns, making it a risky option.
