Start-up businesses and existing firms need sources of funding at different times in their operations. Last month's column discussed crowdfunding as an alternative to traditional bank loans. Two other sources for financing a start-up or emerging business are venture capitalists and angel investors.
Typically, venture capitalists are groups of investors who have money available to finance young, rapidly growing businesses the investors believe have the potential for growth. Venture capitalists sometimes also provide non-
financial assistance to develop a product or business. These investors often are willing to fund ideas seen as too risky by banks or other investors.
Rich Focht, CEO of the Seneca Industrial and Economic Development Corp., said there are networks of venture and angel capitalists in the area who are looking to invest in new ideas. When approached about this type of request from potential entrepreneurs, Focht said the first thing he does is make sure those contacting him have a business plan and know specifically what they want to do as well as have an idea how much money it will take to fund their idea.
Focht also mentioned Rocket Ventures in Toledo is one of the bigger, more visible venture capital firms in northwest Ohio. It primarily funds new tech firms.
Rocket's website said it makes pre-seed investments of $250,000 to $750,000 and often requires an equity position in the organization to which it is providing funding.
Angel investors tend to be individuals or smaller groups willing to fund new ventures. Unlike venture capital firms that are managing money for others, angel investors usually are loaning their own money.
Angel investing is usually associated with smaller firms. Unlike venture capitalists, angels may not require the entrepreneur to give up equity in exchange for backing the new business or product. Angel investors may make loans on their own or pool their funds with other angels to make larger investments.
They may, however, ask for a stated return on their investment to be paid over time, much like a traditional loan. They often require a high return on their investments due to the high risk they incur in making the investments.
Several studies have shown firms funded by angels are much more likely to succeed than those funded by an entrepreneur's family or friends.
Some angels also provide non-financial assistance to the firms to which they make loans, although it is less common than with venture capitalists. They often make loans to start-up businesses in their geographic area with the goals of helping local people get started in business and supporting the local economy.
Perry Haan is professor of marketing and former dean of the business school at Tiffin University. Email him at firstname.lastname@example.org.