As the economy continues to suffer, many people are turning to fundraising for tech companies. They are seeking private capital and other funding sources to keep their companies afloat. In this article we will discuss some of the most common sources of fundraising for technology companies.
Venture Capitalists – These are the ones who have access to large amounts of cash to invest in companies. They are willing to finance a company if they believe in its business model. More experienced tech companies have learned to use resources such as invoice factoring to counter the effects of slow paying customers. They often take a long term view of the company’s potential and may not fund it if the startup company has no long term strategy. They also need to know that the startup has an effective way of raising money so that they can invest the money wisely.
Private Investors – Most of the time an angel investor will invest in a small company to see it grow quickly. They want to make sure that the company is growing in a profitable manner before they make a large investment.
They also may have little to no knowledge of the company at all, but just like the venture capitalist, they want to know how the business plan is going to work.
Seed Funding – This is a relatively new form of funding for technology companies. Seed funds are offered by companies with no business experience. They get money to invest in the company and then hope to make it into profit.
Private Equity – This is the funding method that most entrepreneurs look to when they need capital. They typically have a very large stake in the company and use the money to help the company grow. Many times they do not disclose their stake to the public or the company.
Angel Investors – An angel investor is someone who is willing to invest the money for someone else to help them build the business. They usually have no business experience, but have money to lend to someone who is willing to put up the capital for them to get started. There is a great deal of risk involved when working with an angel investor.
Private Equity – There are many private equity firms that focus on funding new startups. The reason these firms are in the business is to help companies grow and provide jobs to the country. Private equity is a form of equity funding, but the money is being provided to the company to help it grow and create a company identity.
Financing for tech companies can be very difficult. Because of the uncertain economy and the economy as a whole there is no guarantee that this business will ever hit it’s stride. There is a lot of work for the startup company to accomplish and a lot of risks involved.
It is important to understand that there are different types of funding, each with its own set of pros and cons. Some are more reliable than others and will offer a higher return on your investment, others will not be able to offer the same return and should not be considered as viable funding options.
For small companies with no business experience, seed funding is probably the best option.
Although seed funding may not be as lucrative as a small private investment, they may be a better fit for the business if the company is a startup and has a fairly low risk margin.
If you are looking for a larger amount of seed money for the business, private equity is another option that should be explored. These funds are usually available to businesses with high growth potential and have a relatively high success rate with the industry.
If the company is not stable, venture capital may be a better choice because they offer better security than private equity. In these cases, the company needs to prove itself in a market that is not established and is very competitive.