Understanding How To Get Financing From Private Investors

Individual Private Investors, commonly referred to as "Angel Investors" are generally interested in receiving higher returns on their investments than they can make through "traditional" means such as mutual funds or on the stock market. Angels are people right in your own community -- people like accountants, attorneys, doctors or other individuals who actively look for new businesses to invest in, in return for part or "equity" ownership. These investors can usually provide additional capital in the range of $25,000 to $500,000 to help you start or grow your business. However, you have to be prepared for an angel investor to demand a high return in exchange for their investment. However, that is a small price to pay and is lot easier than having to have the necessary credit and/or collateral needed to meet the stringent qualifications for bank loan, sba loan or hard money loan.

In comparison to Venture Capitalists, Angel investors are much less demanding and will also be willing to provide you with their expertise and guidance if your start up company falls within their field of knowledge or profession. That brings us to another point: You always want to make sure that your investors are very familiar with your type of business or market. That way you will not have to spend a lot of time explaining your decisions and business strategy. The investor will already have a good understanding of where you are coming from and with your goals; and they will be eager to do what they can to be a real help to you in meeting them. That truly is a win-win relationship. That type of investor can also turn into a valuable mentor if you take the time and effort to cultivate that type of relationship with them.

Once your angel investor has decided that they are willing to put money into your business, you will find that they are your best resource for recruiting other investors. As you explain your plan to them, and ask for their advice, casually ask them if they'd mind letting you know of, or steer your way any potential investor they happen know or meet. It's also a good idea to let them know you're willing to pay a "finder 's fee" if they direct you to the right investor. A good way to do this is to offer them a higher return than they invested for initially.

Professional people such as doctors and dentists, or other skilled professionals, have a tendency to have an interest in joining occupational investment groups. On the next occasion that you speak with your doctor or dentist (or other skilled tradesperson), give them your prospectus and explain your plan. They may want to invest on their own or even set up an appointment for you to meet with the manager of their investment group.