subject: Are You Looking For Investors But Cant Find Them? [print this page] If you are looking for investors and cant find them, you are probably a new entrepreneur and dont know the ropes well enough to find where to look or have the knowledge about capital to know what kind of capital you need. These things are very important to know when you are looking to raise capital for your business.
Debt Capital
Debt capital is the first type of capital that is available to you. Debt capital is sometimes also referred to as debt financing and is basically a bank loan on a large scale. Debt capital is a type of investment that is of low risk to the investor. Debt capital or debt financing is usually issued by your general financial institutions, such as your local bank or credit union or larger investment banks who are there to help out and finance new companies.
Equity Capital
Equity is completely different in the fact that unlike debt financing, you do not pay the investor any money back with equity capital. This is because equity describes the assets of a particular entity or fund. These assets can be either a pension fund, an endowment, or the funds of a private wealthy family. These assets are usually managed by special financial institutions that specialize in equity. These firms are either private equity or venture capital firms, more of which will be described below. Unlike debt financing, which is low risk, low gain; equity capital is high risk, high gain. What does this actually mean? With debt capital; you have a debt which you need to pay back with interest. With the interest added up, the investor who issues debt financing usually makes ten percent or less profit from the money they invest. Equity capital, on the other hand, is high risk, high gain. Why is this? Simple, when investors invest equity capital, they are investing in your companys assets. If your company fails, such as going bankrupt, they loose everything; however, when you are successful and have a good exit strategy and your company is liquidated, your investors can make as much as ten times the money they invested. You can make good money from that too, but more about that later. First, lets find out how equity capital is categorized.
The Two Types of Equity that You Will Be Exposed To
As far as entrepreneurs go, and how equity capital is categorized, usually equity is either invested in companies as either private equity and venture capital. Basically, all equity is private, meaning that it is not government money. Equity is usually money owned by company pension funds, endowments, funds from non-profit organizations, or even private families. These funds are usually managed by private equity or venture capital firms. Now, whats the difference between private equity and venture capital and which type of equity capital should I be after? Well, that depends on the stages of your company.
If you are an early stage company, you will want venture capital. Venture capital is equity that is specifically earmarked for early stage companies who are to be liquidated or set for an IPO or initial public offering when the company is mature. Liquidation? Isnt that a bad thing? No, not at all. Liquidation is what happens when you exit the company. When you exit the company, you are either selling it to another company or setting it up for initial public offering. IPO actually means that your companys stock and shares is sold publicly on the stock exchange or stock market. When this happens, especially if your company is very successful, your investors can make up to ten times the money they invested.
For more seasoned entrepreneurs who are in the later stages of their companys life, such as at mezzanine stage, and their company is about to be set for an IPO, these entrepreneurs need to consult a private equity firm. Some investment firms can function as both a venture capital and a private equity firm, meaning they deal in both. If you are a young entrepreneur, you may not need private equity yet, but in your search for venture capital, you should start to make contacts with private equity firms. You might need them later. Now you know a bit about the different kinds of capital. Now its time to get to know your investors, who give you the financing you need.
Investors
Like capital, there are also different kinds of investors or investment firms. Investors are the people who invest money into your company. Investors can either work by themselves or can work for investment firms, such as capital lenders who lend out debt capital, or private equity and venture capital firms. In most cases, investors who act on their own and invest their own money are usually known as either angel investors or private investors. Other investors are institutional investors, who are investors that professionally invest for investment firms, such as private equity or venture capital firms. A venture capitalist is also a professional investor who works for a venture capital or vc firm.
Where Can I Go to Contact Investors?
Never attempt to find investors on your own. You need to learn all kinds of things about investing to be able to grasp the world of investors. One good resource to read is information put out by Growthlink, however, VCgate, which is an affiliate of Growthlink can give you the access to over 4300 venture capital and private equity firms located worldwide with their VCgate Venture Capital Database.