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I suppose that you have gone past the first stage of starting
or growing a successful business by completing your business plan, and
you now need to find funding for your business.
There are basically two types of
funding… equity and debt. Understanding the two types of funding is
essential when raising capital.
There are many businesses out there,
but the truth is that not all of them need either angel capital or
venture capital. Many small businesses do not need as much capital,
so a simple business loan or debt capital might be the right thing
for many businesses after the business plan.
For example, many small local
family-owned businesses are solely suited for the purpose of
providing a source of income for the family running the business
and rarely seek to go nationwide or international.
Entrepreneurial businesses on the other
hand can be poised to grow and expand to new heights. These kinds
of businesses are the kinds that need to raise capital. Debt
capital can be raised in the beginning, but for businesses to seek
further markets, raising such a large amount of debt capital can be
rather devastating to the company because of the interest on the
principal loan amount and stringent repayment conditions.
Therefore, in these cases either angel
capital or venture capital might be the key to entrepreneurial
success. In most cases, angel investors usually invest the first
round of capital in a company, either seed or startup capital.
Getting an angel investor to make the first investment in a company
can also open the way for venture capitalists and other equity
investors who have deeper pockets and other connections which can
help a company flourish.
Before getting some capital from either
an angel investor or a venture capitalist, there are quite a few
things to know about your business plan to get such investors
Investors fund businesses not ideas… I
know that’s a cliché but I will say it anyhow. You need to
prototype your business idea. Prototyping… huh? Yes… Just exactly
Prototyping is creating a simplified
version of the intended solution or application. Wikipedia says it
is an early sample model or release of a product built to test a
concept or process. I am not talking about toys now, but a simple
sample of what you want to produce on a larger scale.
That’s what investors will be interested
in seeing. Not just a PowerPoint presentation full of colorful
charts and Pictures. Make a sample to show to your potential
investors. A Market Test with that prototype would be great. I know
at this point some entrepreneurs will be saying but I can’t even
get the prototype now and I need money to do that.