How to Build a Business Others Want to Buy

Chapter 30Raising start-up capital

Traditionally, there are five types of sources of funds and/or investors. Each choice comes with its own unique set of pressures. Only you can decide which way to turn.

• Personal investors. Start-ups often turn to the 3Fs (family, friends and fools) to kick-start their enterprise. They are an easy source of money because they want to support their loved ones and don't want to be seen as ungenerous, short-sighted or tight-fisted. If you do take their money and lose it, which is highly probable — especially if this is your first entrepreneurial rodeo — you'll need to deal with the emotional and financial baggage that comes with that.
• Angel investors. Angel investors are individuals with a high net worth who provide funds in return for a share of the business, with a view to getting in early, absorbing the risk and seeing the value of their investment skyrocket. They generally fall into the ‘sophisticated investor’ class, know how to conduct their own due diligence and can assess deals in a detached, clear-eyed manner.
• Venture capitalists. These people, also known as VCs, are private equity investors. They take a stake in start-ups that exhibit high growth potential. These groups are not overly interested in seeing that start-up book a profit. They want to see demonstrable proof that the start-up has potential and value metrics such as revenue, active users, downloads and churn rate above all else, so that they can capitalise on the upside when ...