Coming up with a unique business idea is exciting, but it takes time, effort and most importantly, money to actualize the idea. While there are several options for small businesses, private investments have often proven to be flexible and efficient. Private investments allow you to choose your preferred investors and allow you to work with people whose objectives and philosophies are in alignment with yours. Sarfraz Hajee, a private investor, attorney and seasoned business advisor, explores with us the various private funding avenues for small, emerging businesses. Hajee, who has worked with numerous start-ups and emerging businesses throughout his career, has leveraged his legal background and business acumen to launch and support numerous such businesses over the last fifteen years.
Here is his overview of the private funding sources emerging business owners can consider:
Angel Investors
This option is probably the most accessible funding option for small, emerging businesses. An angel investor offers you initial funds for your startup in exchange for ownership equity in your firm. The upside is that these investors are mostly experienced entrepreneurs, so you get more than financial support; you can count on them for mentorship and networking opportunities to take your business to the next level.
It is, however, important to first develop a strong business plan before approaching an angel investor. “The plan should showcase your model, market opportunity and long-term objectives of the company,” Hajee notes. Then, you may consider joining angel investment groups, forums and attending networking events for connections and feedback. You can also take part in pitch competitions, and ensure your pitch highlights your company’s unique value proposition to prove why your idea is a worthy investment.
Venture Capital (VC)
Just like angel investors, VCs often invest in companies in exchange for equity. They are mostly popular in the technology and innovation sectors and since they invest in the early stages, there is a high-growth potential. A venture capitalist assesses your business plan and financial statements to determine the expected return on investment (ROI) before the taking the risk.
To attract VC interest, it is important to demonstrate passion and knowledge in your field, proving potential growth and scalability. “Don’t just settle for the first VC that comes your way; take time to evaluate the VC firms, and explore whether there is any past history of investing in your sector. This way, you can trust the investor for advice, perspective and mentorship which can help scale your company further, “ Hajee explained.
Carefully read the terms of the funding to ensure you are comfortable with them and retain the best possible counsel you can afford, Hajee emphasizes. “Some may require that you give up a portion of control or accept board oversight. Don’t sign an agreement if you are not ready to meet your part of the deal,” Hajee said.
Equity Crowdfunding
Equity crowdfunding is a trending option for small businesses looking to raise capital from a large number of investors. Through online platforms and the appropriate network of brokers, businesses can reach out to a wide pool of potential investors who, in return for their investment, receive equity in the company. Successful equity crowdfunding campaigns require leveraging your existing network to build early momentum, as this can attract more investors.
Creating an engaging and visually appealing campaign is crucial. The campaign should clearly explain your business’s mission, goals, and the benefits of investing. While equity is the main incentive, offering additional perks, such as discounts, merchandise, or exclusive experiences, can further boost investor interest.
Private Equity
If you are an established business owner looking to expand or undergo significant changes, Hajee believes that private equity can often present a strong option for long-term investment. Unlike venture capital, which targets early-stage companies, private equity firms generally invest in firms with a proven track record and strong financials.
“When working with private equity firms, you need to demonstrate financial stability through accurate and up-to-date financial statements. Since private equity investments can involve a long-term relationship where the firm may influence business decisions, you must negotiate smartly to ensure that the terms of the investment align with your long-term business goals,” Hajee explained.
Family Offices
Family offices, which manage the wealth of high-net-worth families, are also a reliable private funding solution. The offices offer flexible funding options and are generally more patient with their investments when compared to traditional venture capital firms. “To secure investment from a family office, highlight both stability and growth potential, presenting a balanced approach to risk management,” Hajee said.
Building a personal relationship with the family office is crucial, as these investments are often relationship-driven. Hajee believes that that you must take the time to build trust and align your business goals with the values of the family office. Unlike other investors, family offices might be interested in long-term, legacy-driven investments, so it’s important to emphasize how your business can contribute to a lasting impact.
Sarfraz Hajee’s Key Take Aways
Private capital options offer small, emerging businesses a variety of pathways to secure the capital needed for growth. Whether through angel investors, venture capital, equity crowdfunding, or other private funding sources, each method has its unique advantages and challenges. Sarfraz Hajee emphasizes the importance of preparation, networking, establishing credibility and understanding the terms of any investment. “There are no short-cuts, but you can reap great benefits which come from aligning yourself with the right team of professionals at each stage.”
