2. Venture Capitalists
A venture capitalist can either be an individual person or a larger venture capital firm. Unlike individual private investors, venture capitalists typically have larger amounts of money to invest in a business. Venture capitalists, whether an individual person or a firm, are generally most interested in finding companies with extremely high growth potential.
Since venture capitalists are able to invest larger amounts of money, they will most likely expect to have a larger share of control in the company going forward and may take significant control over your company’s growth to protect their investment.
Venture capitalists can pour tremendous resources into your business and also widen your network. However, in order to protect their investment, this can mean you’re at their mercy when it comes to how you conduct operations or how aggressive your growth plans are.
3. Angel Investors
Angel investors can also act as individuals or as a larger group. These are investors who are capable of investing a large amount of money in a business and are most typically looking to invest in an industry they are familiar with and have experience working in.
The name “angel investor” reflects the fact that not only can they make a large financial investment in your business, but they can also provide very valuable guidance.
Typically, angel investors are interested in getting involved with businesses in their early stages and overseeing their subsequent growth.
Where venture capitalist groups may provide your business with large-scale profiling and networking assistance, angel investors are more likely to involve themselves in the planning and execution of your growing business.
4. Public Offering
Some businesses looking to receive equity financing in smaller dollar investments from the public may make an Initial Public Offering (IPO) and list their stock for purchase by the public. Doing so can be an effective way for a business to raise the capital needed for them to expand, with the added benefit of publicity from being traded on the public market.
Some downsides of executing an IPO are:
- They can be tedious, costly, and time-consuming.
- They may not serve your actual growth if you cannot afford to spend the effort to get one. The eligibility of your business for an IPO depends on which sector you operate in.
- Your annual revenues will play a big role in eligibility (bad for businesses that have irregular cash flow).
- The Internal Revenue Code may layout its own set of requirements for your business.
If your company does secure an IPO though, you may reap the benefits of upfront capital investments made by smaller-dollar investors who would expect to receive far less control than angel investors or venture capitalists.