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What Are Private Investors?
Private investors for startup small business are simply an individual or a firm that takes their own money and puts it into another business. Private investors can invest in new companies, startups, established companies that have run into financial difficulties or need capital to expand and grow. In most cases, private investment is seen as the best alternative for businesses that cannot access traditional financing from banks. In addition to this, private investment is not a loan. In exchange for the capital offered, private investors looking to invest will get equity in the company they have invested in. The investor may also assume a big role in the management and the strategy of the company that they have invested in.
Types
There are three major types of private investments that you can explore as a business today. Here is a simple break down of each of them:
Private Equity Investors
A private equity firm is an organization that collectively raises money from individuals and puts it together for the purpose of investment. Private equity firms will have fund managers who make investment decisions on behalf of individual clients.
The managers charge a fee each year. Private equity firms range in size in terms of the capital they have access to. They are also in a continuous process of raising new money by signing up new individual investors.
All earnings made through private equity investments are distributed as a dividend to individual shareholders. It is also important to note that, when an investor buys into a private equity firm, they are not essentially buying into the investment that the firm has already made. They are simply buying shares into the firm with the hope that, once the investment grows, they will get a return through dividends and capital appreciation. This is a great option for private investors looking for new projects.
Private Angel Investors
Angel investors are often informal in nature. They are very affluent individuals who provide capital for startups. In most cases, an angel investor will get ownership equity in exchange for that investment. In addition to this, angel investors often give financial assistance to businesses during their infancy or initial stages.
This is where the risks are high and access to other forms of capital is very difficult. Angel investors provide expertise and mentorship too to the new entrepreneurs in an effort to help them grow. If you are looking for private investor capital, this is a great place to start.
Peer to Peer Investors (P2P)
Peer to peer investors (P2P) are loan providers more than equity investors. This is where individual lenders give money to businesses in terms of a loan. Although peer to peer negotiations may sometimes lead to equity investment, in most cases they are structured as a loan payable over a certain period of time and with a predetermined interest rate.
The challenge with peer to peer investors (P2P) is that you won’t get a lot of capital unless of course, you take money from more than one individual. But they offer a quick and simple alternative to raising money for your company. In case you don’t know how to find private investors, this option would work.
How and Where to Find Private Investors
In case you are not sure where to find private investors, don’t worry. Access to capital in the current economy is not as difficult as it used to be. Small companies have a wide range of investment options to go for.
Here are a few ways you can explore to secure private investment:
Family Office and Investment Conferences
Family office and investment conferences are designed to bring together potential investors and companies that need capital to grow. These conferences are always an ideal place to network and can give you access to a wide range of private investors in one single go. The only thing you need is to mingle and explain what you do to as many people you can meet. If you still need more on how to find private equity investors, you can even engage with fellow entrepreneurs and see what you can learn about how they have raised capital so far. Knowing important players in the private investment niche can be a big plus in your quest to secure an investor. Family and investment conferences make things happen for you.
Federal Government Programs
The US Federal Government, for example, has established the Small Business Investment Company or SBIC program that looks to provide capital for emerging startups in the country. There could also be other state-level programs like this one. Although getting capital from the government is not always an easy thing, it’s an option worth exploring.
Crowdfunding Websites
Crowdfunding websites can also give you access to a wide variety of investors. The sites are designed to use the collective efforts of individual investors to raise enough money for a startup. In most cases though, crowdfunding will require a very strong PR and marketing campaign to raise enough awareness on what you are doing and why it may be a good venture for an individual investor. Just like peer to peer lending, it’s very hard to raise large sums of capital through crowdfunding. However, with a unique idea and a clear proof of concept, you can be one of the few exceptions we have seen in recent years.
Family and Friends
Finally, it may also be a great idea to talk to family and friends and see if they can spare some money for your business. Convincing a family member or a friend to invest in your business is a little easier compared to a complete stranger. If you have friends or a family with deep pockets, you may not even need private investor loans to get started in your business.