An Angel, a Venture Capitalist, and a Growth Partner Walk into a Bar

Understanding the funding options available to you is essential to seeking, and obtaining, the right type of funding for your business.

Outside of your own personal assets and those of close friends and family (these can be great options to fund your business by the way), where else can you turn?

There are some notable government-backed programs that help fund small businesses. These include the SBA’s small business loan program, and other smaller programs like those for minority-owned or Veteran-owned businesses. Definitely something you should look out for, but they won’t be discussed in detail here.

Instead, we’re going to look at the private equity options available to businesses large and small, new and old, that too many owners tend to overlook. These are:

-Angel investors
-Venture capital groups
-Private equity firms, or “Growth Partners”

Let’s look at each in more detail.

Angel investors
Angel investors are wealthy individuals who invest capital in startup or growing businesses. Angels typically do their investments through small, localized groups.

Angel investments can vary in size, but generally these are for small investments in the range of $10,000-2,000,000. How much equity you give up will of course vary, but angel investors are generally the sweeter, less-pushy bunch when it comes to outside funding.

Some angels are passive investors, but within a group you’ll often find a few that really take a liking to a particular investment and get heavily involved. As a business owner, then, you may get a more personal, mentor-like relationship out of an angel investor.

Angel investment groups
The groups function to bring together a pool of angel investors who can benefit from having other angels to invest with, evaluate potential investments, and have a steady stream of potential investments coming in the door each month.

If you have money and the desire to invest, usually the problem you face is finding the right investments. Angel groups purport to solve that by leveraging connections of all the existing members, “getting their name out there” to entrepreneurs in the area, and oftentimes by bolting onto research facilities at universities that produce a lot of enterprising ideas.

Why does this matter to you, the startup or business owner? The easiest way to seek angel investment, then, is to contact one of these groups in your area and present your business idea or need. You’ll likely have to make a formal presentation to the group. So brush up on those singing skills J.

Angels in a nutshell
-Smaller investments ($10,000-2,000,000)
-Look for Angel investment groups
-Personal, one-on-one help is more likely

Venture Capital
Venture capital is typically a more well-known source of funding for young and growing companies. “VC” money is all the rage if you’re a fledging Silicon Valley tech startup, and therefore you see it a lot in the news and blogosphere.

At their core, venture capitalists serve the same purpose as angel investors and your Uncle Billy lending you $15,000. They give you money to run your business.

But VC is definitely the ‘big leagues’. These investments traditionally pick up around where angels top out, $2,000,000 and more. There are tons of VC groups, much like angel groups, that you can pitch.

It’s worth noting that venture capital has the reputation of taking over the interests of the business owner. The old “you work for them now” thing can happen more quickly here than with other options.

VC’s invest a lot of money, and they want to make it back. That doesn’t happen from quarterly profits, it happens when you sell your business. Granted, this can apply to angel investors or even friends and family, but the higher you go up on this scale of investors, the greater the pressure to produce a successful “exit” in selling your company.

Why does this matter to you, the startup or business owner? Venture capital is a lot like angel investing on steroids. If you’re going big, it might be the perfect funding option for your business. You can find VC groups to pitch in your area. With all these, remember to be conscious of what you’re giving up as far as control of the business.

Venture Capital in a nutshell
-Larger investments, a.k.a. the “Big Leagues”. $2,000,000+
-Have groups just like Angels
-Usually want more control over the business, want to see an “exit”

Growth Partner and Private Equity Groups
There are investment groups that operate outside the lines and labels of ‘angel’ or ‘VC’. They’re a little harder to find and usually source investments from business contacts or personal referrals, so seeking their investment can be more difficult.

But it’s the same function – providing money to a business so it can grow, and make more money. The private groups offer the same type of hands-on advice and personal connection you can get with some angels. They may be more focused on a specific type of business or niche, which can help in leveraging contacts or experience there within.

So, for example, if you’re starting a virtual goods company and can hook up with a PE firm that has invested in 2 other virtual goods companies, that investment could be worth infinitely more than your local bank or an East coast VC firm.

In Conclusion
There’s no easy answer to the question of how or where to obtain funding for your businesses. Each has its benefits and its pitfalls. Just know you’ve got yourself, friends/family, the bank, angels, PE and VC’s all as options. Like anything else, it’s about what you want for your business and how you want to get there. Godspeed.

Nathaniel Broughton is a founder of GrowthPartner.com, a unique angel investment and online marketing group. His firm has helped produce three Inc 500 winning companies and is currently seeking new investments poised to improve their online sales.