Most businesses that fail to secure funding end up using angel investors. These are wealthy individuals who offer you all the financial backing that you would need in exchange for a stake in your business. While this might seem like the best option to run your business it is very important that you weigh your pros and cons before making any decision. Here is a lowdown on the various pros and cons of using angel investors to fund businesses:
Pros:
Angel investors are willing to take risks
Most banks or financial institutions that offer loans to small businesses do not fund startups since they don’t want to take risks. However, this is not the case with angel investors. Being established entrepreneurs, they are well-aware of the risk that they are taking while funding a startup. If they smell a good idea and get a good deal, they will be ready to make bigger investments, giving the startups all the support that they need.
It is not a loan
Unlike banks and other lenders, an angel investor doesn’t expect you to repay the amount that he gives you to run your business. He will have a stake in your company and hence will wait for your venture to succeed so that he can reap the financial rewards along with you. At the same time the angel investor is also aware that your company might fail. If it does you won’t be expected to pay back the funds that were offered by him in the first place.
With an angel investor you will have better chances of success
Apart from the funds, angel investors bring in years of expertise that can help business owners succeed. Such startups are more likely to survive the competition and grow, witnessing a higher rate of return.
Cons:
The expectations will be high
In addition to the higher tolerance for risks, angel investors also have high expectations from business owners when it comes to funding businesses. They will do anything to make sure your business starts making money. The rate of return they expect may be high and even unrealistic. So you will be under tremendous pressure to succeed when you have an angel investor.
There will be Strings Attached
Although you aren’t obligated officially to pay back your angel investor, you will have to let go of a sizeable portion of your future net earnings. It is very important to assess the terms so that the quantity of ownership of the angel investor doesn’t eat into your capacities of realizing profit.
You Aren’t in Full Control
No angel investor would be interested in shelling out the big bucks unless he knows how his funds are going to be used. It is very likely that your angel investor is going to take an active role in making your business decisions. Even if you do get the control of your business, you will still have to report to the investor and explain the reasons behind every decision that you make.
If you aren’t ready to offer that stake in your business, a better option would be to start looking out for finance businesses in New York. Some of these have less-stringent requirements and are ready to fund startups.
