Private investors for startup small business are one of the largest financial contributors to new businesses within the United States. Some small business owners turn to banks while others turn to venture capitalists. However, private investors may be an ideal option for many businesses over these other options.
About Private Investors for Startup Small Business
Private investors are individuals or small groups of people who invest in business. Like all investors, private investors expect a return on their investment and communication about the standing of that investment. What helps these investors to stand apart from others is that many invest in the types of businesses they have working knowledge and experience in. This gives these investors an edge. With their skill, they are better able to understand how your unique ideas will translate into real world results. On the other hand, these investors also have the ability to spot a bad idea and will avoid it.
If you hope to open a restaurant, a private investor that specializes in this particular area of business may be a better choice over a local bank officer, for example. The bank loan officer has limited experience running a restaurant and may not fully understand how well your idea would work within the city. On the other hand, the private investor who has several years of experience in the restaurant business may know exactly what to expect. This investor is able to offer concrete, usable advice whereas the bank loan officer cannot.
Better than Venture Capitalists
Private investors are also beneficial because of how they lend money. In comparison to a venture capitalist, for example, the private investor is more willing to allow you to use the funds as necessary without being too involved in the process. This is similar to how a bank loan works. According to Business Connections on Demand, venture capitalists will want a stake in the business, often demanding equity in return for lending the funds. Private investors will usually provide debt financing instead.
Better than Angel Investors
Angel investors are yet another type of lender for some small businesses. These are often wealthy people who wish to invest in smaller businesses. The benefit of a private investor over this type of lender is the amount of control you will have. With an angel investor, the business owner often deals with the investor more regularly, sometimes in the overall operation aspects of the business. These investors want to have more control to ensure their monetary investment in your business remains safe, though each investor's role is different. The terms of the agreement with the investor will define the level of involvement. Most will hold a board position or have a consulting role within the company. Most will expect regular communication, weekly reports or other active participation in the company. Angel investor and business owner relationships are not cut and dry. These investors expect a relationship and involvement within the business to some degree to provide funding.
Locating and Using Private Investors
As a small business owner, keep your business at the forefront when searching for private investors. Be sure you are able control most of the decisions within your business, including where and how you operate. With that in mind, consider these tips for finding private investors for your business.
- Do expect private investors to want references, good credit and a copy of your financial documents. These investors often have experience and know how to spot a good opportunity and know when to walk away.
- A lending club can be an opportunity for private investing. These clubs are a small group of people who loan to those with good credit.
- Look to a local university with business programs. Professors may be able to help you to find investors who are looking for opportunities to lend.
- Join local organizations and clubs where other business owners like you frequent. These clubs can help you to find investors or partners to work with.
- Take to the web and market your business idea to potential investors. Avoid giving away all of the secrets of the business you hope to create, but work to create a blog or website that attracts potential investors.
Take the time to check out the private investors you hope to work with before you sign a contract. Have an attorney look over this contract to ensure your rights and needs are being met. In addition, realize you have the opportunity to negotiate these loans with investors. In most cases, the terms, interest charges and other fees associated with the contract are negotiable with the right investor.