Venture capital is money provided to companies that are in their early stages if they are high potential companies that have the probability for above average capital returns. Venture capital usually comes from professionally managed funds that have between $25 million and $1 billion dollars to invest in early stage growth companies. A venture capital fund makes its money back by owning equity in the company that it invested in and venture capitalists usually look for companies that have a new technology, new product or a business model in the high-tech industry.
Another source of much needed money for start-ups can come from what is called Angel Money, which is capital provided to start-ups by rich investors (called Angel Investors) and like VC firms, take equity in return for their much-needed capital. Angel investors can be somewhat difficult to track down. You can look nearby for affluent individuals because these kinds of investors like to be able to pop into the company they invested in if they feel like it. Oftentimes, Angel Investors will not be alone; Angel Investors will include themselves into a conglomerate of Angel Investors called an Angel Investor Group, or AG for Angel Group. AG directories can be found by searching the term in your favorite search engine, by asking your financial advisor, and even asking a friend if they know an affluent investor.
Another form of funding of great help to the entrepreneur is the small business grant. It provides money from the government to help fund a venture and best of all, the money is a grant, not a loan, so the money from a grant comes for free. A small business grant can come from federal and state/provincial agencies but certain conditions must be met before a venture can benefit from a small business grant. First of all, a venture needs to qualify as a small business. One of the determinants for this is the number of employees a venture has. Generally, 500 employees or less qualifies a venture as a small business. Also, a business’s credit is also a factor for the government to decide whether or not to give a grant.
There are many purposes for seeking a grant because the money can be used for anything a venture requires such as capital to purchase real estate, money to invest in marketing, assisting debt control, purchasing inventory, etc. A quick query resembling “small business grants” typed into your search engine should direct you to your federal government’s web page for small business grants. The information on how to apply can vary from state/province to state so be sure to read the information thoroughly before applying.
There are many reasons why someone would want to start their own business but three of the more common reasons people choose to go into business for themselves are: to be your own boss, the potential to make more money than a regular salaried job and the satisfaction of creating and running a successful business.
The risks associated with starting a business can be scary to some people though. However, a great deal of the risk associated with starting a business can be avoided with a proper business plan. It is essential to draft a proper and professional business plan and it must include: A marketing section, a financial section, mission statement, sales forecasts for the next 3-5 years, a list of all possible expenses and an outline of exactly what your business will do. If you try to pitch your idea to VCs or AGs without a proper business plan, they will not take you seriously.
There are many shapes and forms your budding business can take. Before choosing one, consult your accountant.
Sole proprietorship – One person is the owner and is liable for all risks.
Corporation – Many owners become involve in the business by having shares of the company. Owners are not liable for risk.
Partnership – Two or more people own the business and are liable for all risks.
Limited liability company – A type of private corporation where one or a few people can own without the risk of a sole proprietorship.
You should now have an understanding of how venture capitalism works and how to make it work for you. Small business grants, AGs and Venture Capital firms will be your start-up’s lifeblood for the first few years until profits expand so you can utilize them to your advantage.