Venture capital funding for small business instead of bank lending.
Venture capital finance is an alternative to bank lending, but it is more expensive than a bank loan and you’ll have to give away equity in your business.
There are plenty of private investors for small business and this has been shown in particular with the recent explosion in Crowd Funding, whereby the are many individuals out there prepared to put up an mount of money to support a business project. However, on the whole Crowd Funding tends to be loan finance, rather than venture capital.
How to find angel investors for a small business is a very good question – I have seen people advertising for equity finance, saying the need £X and in return they will offer £Y as a dividend, so that is an option. You could join networking groups and let it be known that you are looking for equity finance or your accountant might be a good source of contacts too. You could do a search on the internet, as there are websites devoted to providing angel investment – like Brainbox for example, although they seem to focus on Tech businesses. You could even go on the program Dragon’s Den, as the Dragons are providing venture capital and are effectively angel investors.
You may even want to approach your bank and see if he can find angel investors, as he will know many business owners that have ‘Cash’ sitting in a bank account not earning very much and might be looking for a better return. Or perhaps you have family or friends who would be prepared to put up some seed capital for your new business venture.
So what is angel funding? An angel investor is someone who provides financial backing for small start-ups or entrepreneurs. The funding can come in the form of convertible loans or straight as equity finance.Angel investors are usually found among an entrepreneur’s family and friends. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.
In order to get angel investment for your small business, you will need to prepare a sound business plan together will cash flow and profit and loss forecasts, with a 3-5 year horizon.
Whilst you prepare the financial forecasts, make sure you carry out a number of sensitivity analyses and a worst case scenarios, as you want to make sure you obtain the correct level of funding from the outset. It is better to seek to much money rather than too little!
You will need to be prepared to give away somewhere in the region of 10-15% return on equity for venture capital funding.