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The pros and cons of using business investors

The pros and cons of using business investors


When launching a new business in Illinois, entrepreneurs have several options to consider as means to fund their new enterprise. As with many things, there is no right or wrong way to obtain necessary funding as the decision can vary based on many criteria. Every business owner should evaluate the choices individually as making a fully informed decision is one of the most important parts of making the right decision.

Understanding investor options

There are three primary types of business investors as discussed by Angel investors and venture capitalists are two professional and formal versions of business investors. Friends and family members are less formal but equally common investors in new businesses of various sizes and types. Each of these investing options poses its own set of pros and cons to business owners.

Angel investors

In general, angel investors are wealthy individuals who are looking to invest their money into new businesses about which they have some expertise. While they have natural interests in furthering new businesses, their primary intention is focused on growing their personal wealth. One benefit to using angel investors is the knowledge that they can share with business owners. This knowledge can be related to a specific industry, like transportation, or to a specific function, like marketing.

In return for their money, angel investors generally receive a portion of the business. At this point, the potential disadvantages of angel investors become apparent. It is not always easy to know ahead of time which set of angel investor and business owner will see eye-to-eye and which will not.

Venture capitalists

Venture capitalists are usually groups of people that specialize in simply funding new ventures. They generally invest large sums of money, giving a new business great financial strength from the start. They also open the door to many networking opportunities. As with angel investors, they also receive some interest in the business which is the downside for many business owners.

Friends and family

Investopedia outlines very clearly the pros and cons of accepting money from a friend or family member when growing a business. Such personal and professional intertwining can easily strengthen or damage relationships. This is a risk that should always be assessed carefully.

Clear communication matters

Regardless of the nature of investor relationship chosen, clear communication between both parties from the outset is important. Investors and business owners alike should understand the parameters of all contracts and do their due diligence to ensure a positive outcome.

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