When it comes to launching a brand new business in the US there are a lot of things that need to be done, and the to-do list has a lot of boxes that should be ticked off even before you begin.
If you've got a good idea for a business and you've spent time creating a business plan, and exploring the market and competition to understand what challenges you face, the next step you'll need to think about is raising capital for the money or goods used to operate and develop a business.
We've all heard the stories of the entrepreneur who has started their business using their own personal credit cards, but the truth is, very few early stage businesses succeed when they launch in this way, simply because credit obtained via this method is expensive, and most people can't borrow enough money for it to make much of an impact on their day-to-day running expenses or upfront launch funding. Plus, if you don't quickly pay back what you owe, these lines of credit quickly dry up leaving you with a large bill to pay without much to show for it.
Bank loans are another option for the brand new entrepreneur, but it may come as a bit of a shock that most US banks aren't that interested in funding a brand new business without a track record, or without some collateral to secure the loan. Fundraising this way using traditional lenders can be very difficult unless the business is already running and has established a profitable track record.
There are other options, some firms start with a kickstarter campaign, which is a form of crowdfunding. This can work well in certain instances, especially for business ideas that are either unproven, or tackle a specific niche which aren't necessarily launched to make a large profit.
Companies are encouraged to begin raising capital early, since securing funds for a new business can often be a lengthy process. When figuring out how much money to raise, companies will often consider the basics needed to get off the ground, but an alternative school of thought is that entrepreneurs should ask investors for more than that, leaving leeway for factors and expenses that were potentially forgotten or unexpected.
Generally speaking one of the most problematic areas that new businesses face relate to cash flow, where they struggle to stay afloat even if they are making sales and have good turn over. This is one of the reasons you should look for a larger amount of investment than you might initially imagine you'll need. Cash flow issues occur because a business doesn't have an adequate pool of money to fall back on.
Typically, a new business may be forced to use the revenue funds that are generated to immediately reinvest back into the company. Because there can be a delay between money coming in and the need for it to be spent on business expenses, problems can occur. This is where a good cash flow strategy becomes vitally important for the management team. Many a potentially successful business has failed because it has simply run out of money and couldn't continue, even though it had plenty of potential.
Cash flow issues can also stifle a growing business. You may need money to grow, which simply isn't available since revenue is being invested in the business at its current size. This is where additional investment can be useful to take a business to the next level.
Sometimes government schemes, grants and incubators, either locally at a city and state level, or even nationally can help a new business get off the ground. These can be difficult to get onto and apply for as often they are for very specific business types. For entrepreneurs looking to move quickly then angel investment might be the better option.
Next, entrepreneurs have to decide where to get capital. Grants can take up to a year to get awarded, while bank and small business loans have a faster turnaround (2 to 3 months). However, both are increasingly harder to secure these days (even for established businesses) in a depressed American economy. As a result, many entrepreneurs and new businesses have turned to the idea of using angel investors.
Angel investors, are high net worth, wealthy individuals who provide their own funds and expertise. As a source of start-up capital, angel investing has gained in popularity over the past decade. For entrepreneurs that are raising money for their business, angel investors can offer an attractive opportunity. In some cases an angel investor can bring more to the table than just dollars and investment. Often, business contacts, experience and mentorship are all areas that may be offered as additional support. You won't get this sort of support from a bank or venture capital company.
Angel investment does have its pros and cons though, as while they are usually willing to take high risks, the amount of money is generally lower, whereas venture capitalists or a pool of investors that take shares in the company, will invest greater amounts but usually only after the company has a proven growth.
Most angel investors are looking to invest in a start-up or private company. Normally, public companies look to other methods to raise money. In addition, an angel investor may look to invest in a company that has a long term goal to go public with an initial public offering (IPO) but generally speaking they will look to capitalize on their investment prior to this point.
Many angel investors are keen on entrepreneurship since they often started their business careers as entrepreneurs themselves. They might also have other businesses that their either run or invest in.
The Angel Investment Network is a platform that has been designed to connect brand new businesses, start-ups and entrepreneurs with angel investors all over the world. If you are looking to raise capital for your new business in the United States you can sign-up to the Angel Investment Network to publicize your idea and promote your business to a huge, global audience of potential investors.
Whether you are an entrepreneur based in major business hubs such as New York in the East Coast, or Silicon Valley in the West Coast you can find local entrepreneurs, and those further afield, who are looking to invest in an attractive business idea that additional finance can help take to the next level.
Prospective investors will need to see details of your business idea to identify and formulate a valuation of the company they are thinking of investing in. A comprehensive business plan is a must and both parties will need to do their due diligence to fully understand what it is they are getting involved in. This is important for the entrepreneur to understand what they will be giving the investor in return for their financial support, and for the investor to fully understand what the risks and potential rewards are for their investment.
AIN helps investors and entrepreneurs build lasting and profitable relationships to build better businesses and brighter futures.