Getting enough angels funding is one of the toughest issues to address for any startup that seeks to harness ideas into commercial enterprises. Among the different sources of finance, seeking out business angels, that is, individuals who are ready to invest in the early stage of the businesses is one such option. However, for your business, it is prudent to assess the benefits and costs of angel funding before simply proceeding with it.
Benefits of Angels Funding
- Ability to Take Risk
Most business angels are former entrepreneurs and therefore, they have very good knowledge about the risks involved in starting new ventures. Different from mainstream lenders who may be risk-averse in terms of financing a concept that has not been proven in the market, these investors are willing to finance the concepts that they think are commercially viable. Such willingness to take risks has a significant role in getting the required funds to start your business.
- Risk Capital
When one or more investors decide to invest, take care of whether the company will be able to return the investments or not, it is called risk capital. Investment by business angels comes in the form of equity which is an ownership right in the company worked for. Therefore, assuming the startup fails, there is no expectation to get the investment back. Such an arrangement can relieve the economic burden that naturally comes with the early stages of the development of a business.
- Acquisition of Expertise and Networking Opportunities
In addition to investing capital, business angels typically have some business or industry experience. Even in the case that they provide their guidance, it can be strictly informal, for indeed their contacts may facilitate a partnership, sales or new sources of financiers, this makes the chances of the startup making it even more favourable.
Cons of the Business Angels Contribution Toward the Firm
- Pressure for Large Returns in the Investment
What angels can do in terms of risk-taking is to invest, however, even that does expect a draw from the investment. In principle, they require a payout that is several times their investment within a time frame of a couple of years. This could then lead the financed firm to have a lot of pressure to expand or become profitable quickly.
- Loss of Control and A Reduction in the Shareholding Percentage
A percentage of ownership in the firm is held by the business angels for their investment. In the same way, such ownership sparks interest whereby a portion of the net income will be reserved for the owner. Also, the allocation of shares will determine whether business angels will sit on certain boards and make decisions, which makes the entire idea of being a founder questionable.
- Potential for Different Bottom Line Conflicts
Business angels and the entrepreneur may have the same objective, which is the success of the enterprise. However, issues pertaining to the vision, strategy, or the way a business is run can always occur. Dissimilarities stifle Concord and may slow down the company’s progress rate.
Conclusion
Partaking with business angels in the support of finance is about getting both funds and support such as accepting risk, not expecting repayment, and getting expertise. The other side of the medal needs also be evaluated which includes high returns, loss of stake, and loss of control among others. Entrepreneurs need to analyze and make sure that such business angels funding is in consonance with the existing business interests and targets of expansion.
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