Friends and Family

Just like it sounds, raise money from people you know well, either in exchange for equity or as a loan to be repaid.

Upside

• This option has the fewest contractual strings attached, although you should still draw up a contract to protect your friend’s or family member’s investment.
• Funds are typically available quickly.

Downside

• This is usually a limited, one-time source of funding.
• You are spending your friend’s or family member’s money – so do so wisely, and be prepared to deal with the consequences if your business does not succeed.

Angel Investors

Angel investors are individuals who invest in companies at an early stage in exchange for equity and the chance to help guide the company. In contrast, venture capitalists invest as a profession and generally on behalf of other investors.

Generally one is ready to approach angels when they have exhausted their friends and family but are not yet ready to approach venture capitalists for money.

Approach angels if you are looking for large amounts ($25K to $1M) of “smart money”—the people who provide this form of funding have already “made it big” in their own careers and can help guide you to do the same.

Upside

• Angels invest more than money - they provide mentoring and contacts.
• Angels are patient about their investment.
• There are no monthly payments with this type of financing – angels make their money when you achieve your business' exit strategy.

Downside

• Angels are difficult to find.
• Angels deserve regular and thorough reporting, which can take up valuable time.
• You are giving up equity in your company.