forming an llc - What Kind Of Investors Does Your Business Need?

What Kind Of Investors Does Your Business Need?

on February 18, 2020by in 101, DoMyLLC Blog

Forming an LLC requires you to prepare mentally, emotionally, and financially. However, there are instances when the business owner cannot shoulder the finances. In this situation, you may have to consider getting investors. Aside from supporting startups, investors can also provide assistance for companies that want to introduce a new product, expand their operations, or perform a capital upgrade on a piece of equipment to lower the cost of production. 

Forming An LLC

Many business owners choose the structure of a Limited Liability Company (LLC) to start a company. It is a simple way of structuring a business while protecting the owner’s assets. An LLC can have single or multiple members. But like other types of businesses, LLCs are also open to investors. A person can invest in the business without owning a single stock or bond. An investor can also benefit from the protection that LLC offers.

Different Types of Investors

Investors are people that play an important role in growing a business. The level of their involvement and the quality can help determine if a company will succeed or fail eventually. Many people think of only one thing when they hear the word investor. What they do not know is that there are various types of investors. Find out what each type is all about and choose the one that best suits the needs of your company.

  • Angel investors are those people that have significant financial resources. They usually invest in start-up businesses based on their instincts. So, they also tend to choose companies that usually find it hard to attract other types of investors. There are some cases when the angel investor wants a percentage of return on the investment they have made. Meanwhile, other angel investors ask for partial ownership and power when it comes to making management decisions.

To determine if an individual is an angel investor, you may take a look at the income. They usually earn more than $200,000 or have more than $1 million in net worth. These investors are across all industries. They are also beneficial for entrepreneurs that are forming an LLC who are beyond the starting stages of financing but are not ready to get venture capital.

  • If you want to find investors through arrangements, you can check out peer-to-peer lending. You can find one through companies that bring together investors and small business owners. You will have to apply with these companies and wait for their approval. Lenders will determine which business they will support. The business owner and the interested lender will negotiate the interest rate for the investment.
  • Another type of investor you might want to look at is a venture capitalist. Generally, it refers to an organization that funds companies that have a good track record and a significant amount of revenue. These investors rarely support risky start-ups. They are those that normally deal with several millions of dollars worth of investments. Venture capitalists can invest millions in a company. They either get returns from carried interest or by getting a percentage of the hedge fund’s or private equity’s profits as compensation.
  • A formal way of getting a business investment is by getting a bank loan. Many owners choose this source of financing. To get a loan, you will have to prepare the proper documents. You will have to present your business plan and describe the type of business you have. Most of the time, banks will require those applying for loans to provide proof of collateral or revenue stream.
  • You also do not have to look far to get investors. If you have relatives or friends that are willing to help you out, they can be your company’s investors. They will be considered as personal investors. Additionally, it will be easier to convince someone close to you. However, you have to ensure that your personal relationship does not affect your business relationship. Thus, it may be best to have a contract. If you are forming an LLC, you may also have to be aware of the legal limitations on the number of individual investors allowed. Check your state laws for more details.

Starting a business requires a lot of effort. You will also have to make sure that your company has the right finances. One way of doing this is by getting investors. Carefully consider which type of investors suits your company and situation. Having the right sources for your capital can help with the company’s growth.