Pros/ Cons for Potential Investors

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Family and Friends

Pros:

• Likely to invest

• More patient than outside investors

• Useful for start-up funding

• More invested in the company

Cons:

• Unrealistic expectations, misunderstood risks

• Family Disputes

• Generally loan only small amounts

• Need to eventually find other, bigger investors

Strategic Partners Basic introduction:

A relationship between two businesses, usually formalized by one or more written contracts, that often falls short of a legal partnership entity, agency, or corporate affiliate relationship.

Requirements:

• Mutually beneficial

• Both parties offer unique services

• Takes percentage of the company

• Input on business plan and product development

Pros:

• Expand customer base

• Greater innovation

• Add value

• Grow brand awareness

• Useful input from previous experience

Cons:

• May have issues sharing expenses

• Usually have too much influence

• Opposing ideas for the company

  • Different Objectives and goals

• Difficult to break the contract

Crowdfunding

Basic introduction: Crowdfunding is a method of raising money through collective efforts of friends, family, customers, and individual investors, most often via the Internet. The most common type of Crowdfunding uses sites such as Kickstarter and Indiegogo. On these sites, rewards are offered for each donation.

Requirements:

• Each website has different rules and requirements (ex: Kickstarter rules)

• Perfect your message before launching your Crowdfunding campaign

• Don’t ask for all the money at once - focus on specific areas of your project

Pros:

• Reach a larger audience

• Increased Exposure

• Low Risk

• Donators don’t receive equity in the company

Cons:

• Fees

• Investment of time and no return

• Less flexibility after you have launched your project

• Without an engaging story you could be unsuccessful

Angel Investors Basic introduction: Angel Investors are individuals who have money they are willing to invest into a business for equity stake in the company in return. Angel investors could be professionals such as doctors, lawyers, former business associates, or better yet, seasoned entrepreneurs interested in helping out new entrepreneurs. Angel investors must have a networth of at least $1 million and $200,000 yearly salary

Requirements:

• Sell investors equity in the company and file the investment raise with SEC.

• Must have a business plan and include all the numbers

• Do scenario planning - have a plan B (and plan C) to show investors how you will handle if something goes wrong

Pros:

• Investors can be a good mentor

• Quickly raise money

• Investors can introduce you to their network

• Do not have to pay investor back with interest

Cons:

• Give away part of the business

• Have other opinions to listen to
  

Venture Capitalists

Basic introduction: Venture Capital companies are private for profit organizations they purchase equity in young business they believe have high growth potential as well as high profit potential. These investments are risky as they are liquid, but are capable of giving back large returns if invested in a successful venture. All returns to venture capitalist depend upon the growth of the company. Over 400 venture capital companies operate across the United States, most seek investments in the 5-25 million dollar range.

Requirements:

Venture Capitalist seek equity in companies with strong growth and profit potential that show competent management, a competitive edge, a viable exit strategy as well as intangible factors.

Pros:

• Have large liquid amount of equity

Cons:

• Venture Capitalists have major influence in the companies they have stake in . Business plans are also subjected to an extremely rigorous review with a less than 1% acceptance, with only 2% of their capitol goes to business in the startup or seed phase.

Investment Bankers

Basic introduction:

• Investment Banking is a special segment of banking operations that helps individuals or organizations raise capital and provide financial consultancy services to them.

• Investment Banking act as intermediaries between security issuers and investors and help new firms go public. They can purchase all the available shares and resell them to the public.

• They provide various types of financial services, such as proprietary trading or trading securities for their own accounts, mergers and acquisitions advisory which involves helping organizations in M&As; leveraged finance that involves lending money to firms to purchase assets and settle acquisitions, restructuring that involves improving structures of companies to make a business more efficient and help it make maximum profit, and new issues or IPOs, where these banks help new firms go public.

Requirements:

The investment bank will go through a process of due diligence to determine the long term benefits in terms of revenue and cost.

Pros: Can be extremely beneficial if a large company is seeking to go public.

Cons: Investment banking is among the most complex financial mechanisms in the world

Small Business Administration

Basic introduction:

• Gives entrepreneurs access they need to grow business

• Open to new venturists that can’t meet normal standards

• Connect them with conventional lending institutions.

Requirements:

• Cooperation/ Self funding %

• Payment plan (Avg. 12 years)

• Qualifications to run business

• Financial statements

• Business plan
  

Pros:

• Reasonable Interest Rates

• Long Repayment Terms

• Lowest Down Payments

• Less Collateral than Banks

• Multiple Loan Programs

• Free application

Cons:

• Extensive Paperwork

• Prolonged Approval Time

• Strict Conditions for Approval

• May Require Collateral

• May Not be Able to Take on Another Loan
  

Viable option: SBA offers

• 7(a) Loan

  • Refinance/buy equipment, acquire a business, buy out a partner, and more

• 504 Loan

  • buy/ renovate real estate

• Express Loan

  • Finance up to $350k to be used for almost any business need