If you are seeking investment capital for a start-up, new idea, or emerging business model, it is crucial you understand the startup financing market. There are basically five sources you could go to for seed capital (the earliest stage of money for an idea-stage business).
- Friends, Family, and Fools – These are the people who love you, support you, probably have no idea what you are talking about…and will reach down and grab $1,000 to $100,000 to affirm your belief and ideas. They usually have limited or no value-add and can oftentimes get in the way of serious early and late-stage investors.
- Angel Investors – Angel investors are high net-worth individuals who provide financial backing to startups, entrepreneurs, or small businesses. These types of startup investors tend to be successful entrepreneurs, business professionals, or corporate leaders who want to use to their wealth and connections to invest in something they believe in personally. They could invest as little as $50,000 or as much as $1,000,000.
- Crowdfunding – It would be a mistake to ignore crowdfunding, as an option for raising money (especially in some industries). Over $15 billion is generated through crowdfunding in North America every year. In 2019 alone, there were over 6 million crowdfunding campaigns worldwide. With crowdfunding, startups rely heavily on donations from social circles, but the success of crowdfunding efforts is often bolstered by a savvy marketing strategy, social media leverage, and some good old fashioned PR. FYI – Crowdfunding is typically donation or product-based (if the startup sells physical goods).
- Venture Capitalists – Angel investors and VCs are often confused by newbs. While both are types of startup investors who provide financial backing, everything else about their investment and involvement differs dramatically. Venture capitalists typically invest millions of dollars in startups, entrepreneurs, and small businesses by securing a sizable equity share in the company, oftentimes securitized by assets and cross-collateralized with the entrepreneurs’ other assets. This is known as venture equity capital. This is done with the assumption that the equity capital will increase, and the venture capitalist will receive a positive return on their investment by 10, 20, 100x (to make up for their total losses on other investments). Venture capitalists typically avoid investing in high-risk startups, opting to invest in startups, entrepreneurs, and small businesses with solid business plans and the potential for exponential growth. If peer-to-peer, crowdfunding, and angel investing are solutions for Early Stage / Round A1 investments, VC investing is for the pre-teen business that is generating revenue, has intellectual property protection, and can define a business model to eventual profitability.
- Banks – There is an old saying that a bank will only lend you money when you do not need it. That is true. If you have cash deposited, other assets, real property, or something else they can lien against OR if your business is something they have decades of actuarial data to justify their decision to put shareholder or customer money at risk, then there is a chance. Otherwise, even well-funded companies from some of the largest Venture Capital and Private Equity firms cannot raise bank funding without securitization that is “pari passu” to the banks risk. In fact, not long-ago Silicon Valley Bank (SVB) filed bankruptcy. This was the bank that all high-flying tech companies went to for leverage on their equity capital. Sadly, SVB failed as they were too highly leveraged with their high-risk startup clients. Banks don’t take risks. Be wary of wasting your time on this start-up capital source. When you don’t need a bank, they will be there with their arms out to support you.
You can find more information about start-up funding and early stage investments here at our blog: https://creomediacompany.com/ali2/blog/#
Ali Choudhri and Jetall Capital are not actively soliciting early-stage investments currently. However, if you have something you feel is compelling, feel free to Contact Me through this form. Include your elevator pitch and contact info. Any graphics, PPTs, or supporting documents should also be sent along or provided via a Google Drive connection if too large.