How Business Investment Works

When it comes to starting a new business one of the biggest problems a start-up faces is how to fund it in the first place. The best business idea in the world will not end up becoming successful if cash flow and investment isn’t carefully managed. Many small business owners often overlook how much real finance that they will need to launch a business. Escalating start-up costs such as real estate, and office equipment can quickly add up. For example, a local business based in New York or San Francisco is going to have to factor in quite a lot of cash in their business plan to be able to afford rent in these locations.

Often an entrepreneur may believe that they can launch their business or a new product by funding their own business with their credit cards of from their bank account. Whilst this might be the case for one or two lucky business owners, this strategy is typically considered a bad idea simply because the debt accrued is subject to a high interest rate. Also, startup costs can be extremely high so using your own money is not always a viable option.

How Business Investors Can Help a Business

Making a sound business investment is not only beneficial to the investor and the investee but it also stimulates and revitalizes the economy.

Business investments can help a small business grow and are often preferable to small business loans which can come attached with a number of constraints. Small business loans are also increasingly hard to obtain for a new business without much of a track record so are not normally that popular for entrepreneurship.

Individuals such as angel investors, and companies such as venture capital companies will look for business investment opportunities and will make an investment based on a few different factors, such as who they are investing in, the product or service that is being sold, or simply based on the current financial performance of a company.

Types of Business Investments

Debt capital and equity capital are the two most common types of investments. Debt capital is basically a business loan – a set lending agreement between a business and a financial institution, where the business must pay back the borrowed money over a designated period of time with interest. The lender or financial institution, doesn’t own shares in the business, but loans are usually secured with company assets.

Equity capital, on the other hand, is financing raised in exchange for a share of ownership in the company. Equity financing allows businesses access to funds without accruing debt or having to pay back the money within a certain time frame. Two key types of equity investors are angel investors and venture capitalists.

Angel Investors vs. Venture Capital

Angel investors are usually more willing to take larger risks, providing smaller sums of money over a shorter period of time at the beginning of a business venture, while venture capitalists pool larger sums over longer periods to fund businesses with established earnings and growth. Both however, seek some involvement in the company, whether its angel investors counseling CEOs or venture capitalists acquiring a board seat.

Sometimes the business structure will need to change to adapt to the type of investment that is needed. For example, taking on board an angel investor as a business partner may need the business to be set up differently. It is worth carrying out research and due diligence to ensure that you get the admin correct if you are looking for this kind of equity investment.

Occasionally venture capital firms come on board to deal with debt financing issues which are hampering business growth. Sometimes angel investors might also do the same, but not always. Venture capital companies may also come on board to help a company reach IPO. Once this has occurred other types of investors start becoming interested in the organization, such as investment funds.

How the Angel Investment Network Helps

If you’re looking to grow or expand your business using angel investors and private investment then the Angel Investment Network can help.

Our global portal can help connect your business with angel investors from around the US and the rest of the globe. Simply sign up to our network, post your business details and start connecting with those high-net-worth individuals who are looking for investment opportunities just like yours.