You step out of your house to leave for office, being now a founder you travel by your own vehicle, you reach your office and see the big flashy company logo outside the office along with the company name in block letters; you turn down the knob and open the door, the first thing you see is your small team already present before you and working on the projects. You are content to see this. Now, you walk towards your cubicle and are happy about the fact that you made the right decision of starting your own company. You reach your cubicle, grab a chair, and take a seat. You dream bigger and want to scale up your business. Confidently you think, “I have come this far now I’ll go farther”. You look for the ideas that can help you scale up but stop midway thinking, “But where are the funds?”
Exactly, being a start-up, how will you raise funds? You do not want to wait for loans to be sanctioned. That is when Investors come in the picture.
Whoa! But who is an Investor?
An Investor is a person who invests his large chunk of money in your idea turned start-up for you to scale up your start-up and in return he earns a share or equity (depends on the type of Investor you approach) along with the profit you make.
But, where will I find an Investor?
There are plenty of Investors out there who are ready to help you on their terms and conditions.
Majorly, there are 3 types of Investors:
Angel investors are individuals who usually work with entrepreneurs that are somewhere between their first time financing and a venture capital effort. These investors may demand shares of your company in return of money they give you. Unlike Venture Capitalists, Angel Investors offer help overall.
Peer-to-peer lenders can be individuals or groups. They help fund small businesses.
Venture capitalists are private equity investors that provide capital to companies exhibiting high growth potential in exchange for an equity stake. They usually invest sizable chunks of money, and are typically used once a business demonstrates potential for significant revenue.
To convince them to earn more money (than they are investing) through you, all you have to do is make a presentation (called as Pitch Deck) that covers up various factors like problem, solution, traction, founders, team etc. and present it to them. If the investor likes the idea then he/she is surely going to invest in the same.
Having said that, having an investor comes with certain advantages and drawbacks. Let us be practical and look at both.
Having an Investor does not only give you the freedom to have the money in your hand but also an assurance that you do not have to worry about the financials. Also, you can plan and spend the money efficiently as per the need. Financials are no longer a problem. You can focus solely on expanding the business. Having money opens several doors for you in the market.
Looking at the other side where grass is not greener, an Investor comes with a price. The investor’s aim is to make money no matter what. He is a silent partner. He does not get on the field and play. He can only sponsor you. You are the one who is going to play on the field and find out ways to earn the money you’ve spent. Now, you do not only have to think about your small team and expanding the business but also the repercussions of you failing. The investor is not going to like it at all (there’s contract involved). Also, if you do succeed, the investor is going to have a part of your company (called equity) at the cost of the money he gave you. Too much stress to handle right? And to become a psychopath rather than running and expanding your business is the last thing you will want.
Although, the money looks good at the beginning, it is always better to take the calculated risks. I am not saying, all investors are bad. Some of the start-ups have taken the funding and have turned into well successful big companies. Also there are start-ups who have failed miserably and could not even collect the money they spent.
In the end, it is the Founder’s (in some cases the Board’s) choice to go for the funding or not. Either way, it is going to be your decision, you pride it or regret it. Your life, your business. But always make sure the umbrella you plan to be under is safe, reliable and worth it.
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