Types of Business Investors
Once you have figured out the funds you need to not only get your company started, but to carry your company until it is able to cover company costs, you may need to seek investors in lieu of or in addition to traditional bank loans. You will need a strong business plan and a proposal that will interest your investors. Here are the four most common types of business investors.
Your friends and family may be a source for investment funding. Private loans allow for flexibility, have no loan fees, and may be cheaper than more formal sources. These should be formalized by a written agreement to protect both parties that includes the amount of month, the rate and terms of return, and any ownership arrangement.
Peer-to-peer lending is lending typically originates on websites called lending intermediaries that host entrepreneur’s profiles and business plans, perform credit checks, allow individual lenders to bid on investing in individual borrowers, and process the loan, for a servicing fee. Generally loans are unsecured. Other names for peer-to-peer lending are: P2P, crowdlending, and crowdsourcing.
An angel is usually a wealthy individual who invests his/her own funding in a start-up company in exchange for equity in the company or as convertible debt. Sometimes angels organize into angel groups or angel networks to join research and capital. Angels typically make investments of hundreds of thousands of dollars. Other names for angel investors are: business angel, informal investor, angel funder, private investor, or seed investor.
Venture capitalists are organizations that are typically investing several million dollars in innovative companies that are already showing a profit. They usually require partial ownership equity and want to be part of the company’s decision-making process.