There are many ways to get funds to change your idea into a promising business. Those which get a lot of attention nowadays are crowdfunding and angels investing. Choosing one of those, you should be aware of all pros and cons of each kind of fundraising method.
Let’s focus on crowdfunding first – the great advantage here is simplicity of the process, as well
as access to unaccredited investors not including all of the legal issues that may occur in another method. What is more, crowdfunding allows good and innovative ideas to grow as it doesn’t require the help of conventional investors but a crowd, which usually works by word-of-mouth advertising. Using certain platforms, customers/investors can be sure it is a safe process.
Despite the many pros of crowdfunding one big risk can be disclosing the idea to the public.
This exposes your business concept which can be copied by competitors who have the advantage of better financing. It is recommended to execute not to protect a business plan, as there will always be others who will copy your idea and that can’t stop you from creating your start-up!
A second disadvantage of this type of funding is that it is not suitable for all kinds of businesses. It’s perfect if you are able to create your product or service quickly after collecting funds as results are expected by investors who want to see it as soon as possible. It wouldn’t work if your return period is too long, then you could try angel investing.
After all, crowdfunding is a quick and easy way to obtain funds while also building your customer base. One big risk can be exposing your idea to potential competitors.
Now in regards to Angel Investors, they tend to be a high-net- worth group of professionals who are keen on helping new companies to expand. It’s an exchange of seed money and equity stake of the start-up. Usually, when new businesses start to bring benefits, the angel investor will sell their shares for a profit. This particular type of investors may create groups called a syndicate.
Firstly, business angles not only provide money but can share contacts in your sector or they may already have some experience in your field which might help in order to develop your company. They can often share their expertise and recommend which steps you should follow.
Secondly, choosing an angel investor is a big opportunity for risky start-ups and their ideas. A lot of investors are aware that the majority of new small businesses will fail, but they are still willing to risk their capital and help new entrepreneurs grow.
In the end, collaborating with an angel investor is well worth considering as obtaining a loan can be difficult for a newly launched company.
A problematic issue regarding angels investing can be their role in your business. As they invest they will gain the right to decide on many internal operations. It is always a good idea to set the conditions of the angel’s fundraising. Another factor against business angels would be that they often create pressure in a start-up which is trying to succeed. Generally, the stressful environment is considered as negative one, but looking closely for some entrepreneurs can be a great motivator to reach the best results.
In conclusion, crowdfunding and angels investing are both a great help for young entrepreneurs who want to grow their ideas. It’s always up to the project and sector of business when choosing the proper way of funding.