Do you have significant growth plans and want funding for small business to help achieve this growth? Obtaining the first round of funding for a private company can be time consuming and challenging.
A popular way to find funding for small business is to approach venture capitalist firms. Research has shown, however, that venture capital is not equally distributed between male and female run businesses. A recent study by PricewaterhouseCoopers and the National Venture Capital Associate in the United States found that of the approximately $48 billion venture capitalists invested in 2014, only 7 percent was invested in women-led businesses, which highlights the issues in obtaining funding.
Funding for small business
We examine the growing trend of women-oriented venture capitalists and look at the best ways to secure funding for small business. Here are 4 key tips.
Angel, Venture Capitalist – what’s the difference?
Different types of investors invest at different stages of a company’s life cycle. You will make the best use of your time, and that of potential investors, if you research:
- What types of industry and businesses the investor invests in;
- How much the investor usually invests; and
- What sized business and at what stage of the business lifecycle.
It is neither easy — nor helpful — to have someone who is unfamiliar with your business write a cheque to invest.
Angel investors
Angel investors are high net worth individuals who often invest in familiar industries. Consequently, they understand the risks and can add value with insight for the management team.
For example, angel investors often deliberately choose the high risk, high reward nature of an early stage investment. They may choose to invest at an early stage when the company has a low valuation. They usually manage their risk by only investing a small percentage of their overall wealth in any one new business.
An angel investor may, for example, choose to only invest in new high growth companies. They may invest a maximum of $200,000 per company, only invest if others also invest, and only invest while the company is valued at $5 million or less.
There are established groups of angel investors in many cities around the world. Members interested in investing in a company form a syndicate. They collaborate to complete due diligence, individually and collectively assessing the quality and the deal’s potential return on investment.
One such angel investor group is Scale Investors, many of whom are high net wealth women. Scale Investors generally look for a ‘scalable’ product that has marketable features and a business model that can generate at least $20 m revenue in the first five years, as well as a female founder or woman executive.
Venture Capital
The most traditional form of investing is through venture capital, which procures an amount of equity within a business in exchange for shares and participation in onwards growth. The rate of investment into new and small business has not abated in terms of these means.
A venture capital fund may, for example, only consider a company which has a strong track record and a history of significant growth, that is already valued at over $10 million, and that has clear potential for global impact in a particular industry.
Crowdfunding for equity
Crowd-sourced investment as funding for small business has two main forms. The one most akin to modern business, where buyers are able to purchase equity or some form of stake in the business – whether that be through input into operations or through dividends – saw a surge in 2020.
Benevolent backers
The other form of crowdfunding as a way to get funding for small business, is done as an act of goodwill or through brand loyalty, has also seen a huge increase in interest. The public, with more spending money in their pocket due to a restrictions on where they can spend it, has turned their hand to helping businesses to stay afloat – typically as a thank-you for the years of service they have received.