Posted by Jennifer Nelson on September 14, 2010 under Small Biz and Entrepreneurship,Small Biz Planning,Small Biz Startup | 
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Frequently, I have clients ask about different opportunities to fund their small business startup and it seems that most individuals are interested in investors. This term tends to be the nebulous catch all for individuals that give away money but there are important distinctions in investor groups. This article is meant to help you understand venture capitalist, angel investors, and individual investors.
Venture Capitalist
Venture capital investments are generally made in cash in exchange for shares in the invested small business. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and IT (Information Technology). In 2008, venture capitalist-backed account for 10 percent of sales and private employment, but well less than 1 percent of companies.
Venture capital is important for building high growth companies. Venture Capitalist backed projects are 150 times more likely than average small business startup to create jobs. Venture Capitalists invested $18 billion in business startups last year. Over all, venture capitalists made 2,802 deals, investing in 2,372 companies. Approximately 728 small businesses received first-time funds or $3.3 billion in first-time financing. In 2008, average Venture Capitalist investment was $7.4 million. Venture capitalists are often the first choice for firms who are looking for a large-scale project or need money for research purposes.
Angel Investors
An angel investor, also known as an informal investor is an affluent group of individuals who provide capital for a small 
business startup, usually in exchange for convertible debt or ownership equity. There is a growing trend for angel investors to pool together into angel groups or angel networks to share research and pool their investment capital. In 2008, the average angel group investment was $275,000. As a whole, angel groups make one quarter of the investments of venture capitalists. Always have your documents reviewed by a lawyer before you agree to any funding terms.
Individual Investors
Individual investors are often persons who dabble in investments and have limited funds to appropriate to your small business. Many times individual investors are people you know like family and friends. The average individual angel investment is only $77,000, half of individual angel capital is provided as debt, and more than 2/3 of individual angels are unaccredited. Be careful when dealing with individual investors, providing appropriate rates of return using debt would violate usury laws.
Whichever method you choose it is important to understand the strengths and weaknesses of your investor. In 2008, overall 7.3% of business plans made it through the screening process. Only 3.3% made it to the presentation process. About 2.8% had investors complete due diligence and 2.1% received investment. Working with investors is competitive and it is important that your business plan meet their exacting standards. A solid small business plan should grab hold of the vision in which you want your company to be perceived, plant the seed to grow a successful and profitable small business and prove the two previous points to investors. Finally, always understand the investor’s business plan qualifications before you begin solicitations. Being smart early on will increase the chances of your success and help you achieve that all-important capital for your small business startup.
