Finding venture capital or an angel investor may seem like the answer to many small business funding needs, and it may be if you are in the right industry, have a solid business plan, a track record in your industry or a related one, a qualified management team, and you don’t mind giving up equity in your business and having someone watching over your shoulder.
Venture Capital: Most venture capital firms invest several million dollars in the companies they fund and in return expect an ownership share in the company (stock) and a management position within the company or a seat on the board of directors. Most prefer companies in rapidly growing industries, such as technology or bio-technology. Less than 1% of applicants qualify for funding. To find a venture capitalist, ask your banker, attorney, or accountant for a recommendation to a company specializing in your field and arrange an introduction. (Most VCs don’t like cold calls.)
Venture capital funding is a fertile field for scam artists. Before engaging in business, contact the Better Business Bureau in the community where the company is located. Also contact the Attorney General’s office in the state in which the business is located and ask if complaints have been filed against them.
Angel Investors: Angel investors are wealthy individuals or groups that provide less money than venture capital firms, usually to early stage businesses. Like venture capitalists, angel investors usually prefer to invest in rapidly growing small businesses that will provide a high rate of return in a short time. They will expect a seat on the board and/or a management position within the business.
Ask your banker, attorney, or CPA to arrange an introduction to an angel investor. Like venture capitalists, angel investors don’t usually like cold calls, and only a small percentage of businesses qualify for funding (less than one in 500).
VCgate and National Venture Capital Association are online venture/angel capital resource directories where those seeking venture capital can find possible investors. To find venture capital and angel investors who specifically invest in Idaho businesses, make a search on the Resource Wizard.
For more information about venture and angel capital funding, visit the Small Business Administration’s website.