Small Business Funding: Venture Capital Vs Angel Funding
Money is the lifeblood of any businesses, and unfortunately for start-ups, money is usually a scarce commodity. However, there are many options for small business funding that can help turn a great idea into a profitable business. However, all small business funding options have their advantages and disadvantages, and for this reason any investment opportunity should be considered very carefully. Too many business owners have had the false notion that a small business funding offer is ‘a once in a lifetime opportunity’ and have sacrificed their control over the business. Thus, before you make any small business funding decisions, take a closer look at your options. This article outlines the difference between venture capital and angel funding for small business startup funding.
This is one of the most popular small business funding options and according to PWC MoneyTrees’s quarterly insight on business funding, venture capital funding increased by 22% from January 2011 to January 2012. According to the report, over $28.4 billion was invested in the United States alone. The benefits of venture capital for small business funding are that investments are usually high volume. If you need lots of money for your startup, venture capitalism is a good option. Furthermore, venture capitalists generally offer legal and marketing expertise, and have great contacts. However, venture capitalists are also business people, and will want to make sure that you business has the potential to be profitable before making an investment, as they will carry the risk of losing money if the business fails. The downside to this small business funding option is that venture capitals usually want a lot of managerial and operational control, which may conflict with your business objectives. Often, they ask for 50% of your business or more.
Angel funding is similar to venture capitalist funding, but to an extent is on a much smaller scale. It is thus suitable for small business funding for startups that require less initial capital and who need money immediately. Usually angel investors are wealthy business people or even retirees who are looking to get higher returns for investments than they would in the stock, bond, currency or real estate market. They don’t like high risk and usually cannot offer expert knowledge or assistance. Like venture capitalists, they ask for stakes in the small business, but usually not as much as venture capitalists. Once again, they will want a degree of control in the operations of your company in exchange for their small business funding.
Penny Munroe is an avid writer in business related news and tips. Articles include sourcing the best office space in Miami to digital marketing tips.