While debt funding is most common, there are still tens of thousands of companies financed each year by private or “institutional” investors in exchange for an equity ownership stake. They range from the less sophisticated “friends and family” type, to high net-worth private investors known as “angel investors,” all the way up to the sophisticated professional investors called venture capitalists.
When you are not able to borrow from the banks, consider asking your rich Aunt Mildred for a little help. As a jolt of startup funding for many a family-run business, small business financing from friends and family typically comes in small amounts without a lot of hassle or legal expense, but be careful. Always stay professional and remember to be in constant communication. Even little brief daily notes on the progress of your business. Depending upon your priorities, realize that business has risks, and preserving your relationships with friends and family is at least as important as your business opportunity. The upside is that there is less paperwork and it is usually available quickly. The downside is that it can be very difficult when you combine work and personal life and the possibility of losing all that money.
Do you believe in angels? I do. With approximately 250,000 high net-worth private investors in the US who fund over 30,000 small companies each year, you might be seeing wings yourself. “Angels” have earned their name by typically being friendly and patient about their investments and by providing their business wisdom and valuable relationships along with their money. They often like to invest in groups, each taking a piece of the deal. You can expect to get around $25,000 to $1 million. The upside is that most are relatively patient about their investments and they often invest in business smarts and networking opportunities. The downside is that they can be quite elusive and it may be difficult to manage the divergent interests of a large group of angels