When your fast growing company requires capital, and your own resources are short, there may be solutions. Between venture capital firms, angel investors, and a wide variety of entrepreneurial loans, a solid business model with evidence of great execution can likely raise loan or investment capital.
University of New Hampshire’s Center for Venture Research stated that there are over 234,000 angel investors in America who invested in almost 51,000 private agencies. The term “angel investor” could describe a range of investors from recognized sophisticated investors, to your neighbors, friends and family.
Accepting investment in your company is a very serious move that might bring serious consequences. Your business might just need the capital now. The choice to take on investors is a very complicated one. It might involve giving some ownership of your company. However, inviting new stakeholders may actually prove to be a benefit. Think of every investor as an ally, who contributes more than capital.
Pros
Additional Value: Investors could bring good value to your company beyond money. Investors want to witness your company succeed. They can contribute money, connections, resources and expertise.
More Resources: An investor could likely contribute bigger amounts of money that you can make personally from profits, cash flow and savings.
Advocacy: An investor likes to see your company succeed to increase the likelihood of a return on investment. To assist you, a lot of investors are willing to support your company through leveraging their professional network. For example, investors may introduce you to the main sources of fresh and new business.
Disadvantages
Obligations: It should go without saying that accepting investments requires you to share future capital.
Investors want to have a gain on their investment in the type of interest, improved the value of share or dividends. Investors want to earn a significant amount. If you are at ease with this obligation, then, go accept investors.
Shared Ownership: A typical investment case involves giving the shareholder shares in the business in return to finances. While you must perfectly enjoy managing your business through keeping the majority of shares, still you will need to answer to other investors on company issues about profits, expenses, sales and company performance.
Accepting investors requires you to prepare various documents, including a Memorandum of Terms, Amended and restated Articles of Incorporation, Preferred Stock Purchase Agreement, investor Rights Agreement, Right of First Refusal and Co Sale Agreement, Voting Agreement and Indemnification Agreement which is very complicated to process.
Less Gain: Your investor want to have a significant amount of return on their financial investment, therefore, you could expect to gain less money because you should share business gains and revenues.
It is worth a discussion with your team of business advisors before to accepting any situation involving investors. It is suggested to consult with your lawyer, accountant, as well as financial planner to obtain a good set of opinions. You can also speak to other business regarding this issue.