Angel Investors vs. Crowd Investing – Guest Post
Angel investors and crowd investing are both forms of financing that have recently become popular. Although each has its own advantages and disadvantages, angel investors tend to be better for starting up businesses, while crowd investing is more helpful when it comes to setting up and running smaller operations.
Angel investors are affluent individuals who help provide financing to deserving candidates using their own money. Most of these investors expect to be repaid with either a degree of ownership in your business or bonds that can be converted into common stock shares. Although this might make them seem similar to venture capital firms, they are quite different when it comes to the details. Notably, angel investors tend to choose recipients based on more charitable and generous impulses than the profit-driven motivation of venture capital firms.
Advantages and Disadvantages of Angel Investors
You might consider angel investors advantageous compared to more traditional investors for a number of reasons, although there are also downsides to such arrangements. Here are some advantages and disadvantages to counting on angel investing if you are hoping to start up your own business:
* Angel investors tend to be much more flexible with their financing terms because they are investing using their own money. Their loan terms tend to be more lenient and they are also more willing to accommodate changes in those terms if you are running into trouble. Most importantly, angel investors are more willing than most investors to invest in high-risk start-ups.
* Some angel investors take an active interest in the businesses that they are investing in. Since angel investors tend to be established individuals with a wealth of experience in business and other fields, they can provide you with assistance in building and setting up your business for success down the road. Listening to the advice of people who have already traveled down the road that you are planning to take can help you avoid any number of mistakes of which you may not have been aware.
* The price that angel investors require can prove to be onerous, although the loss of control might be more concerning for you if you are intent on having total control over your business. Since angel investors often require partial ownership in their investments, you’ll have to listen to these investors’ opinions and take them into account if you accept their funding.
* Finding an angel investor to help sponsor your start-up can be difficult and time-consuming, particularly since there are fewer resources available out there for you to contact them.
Crowd investing is simply the practice of approaching a large group of people for financing your small business. Instead of asking a single person or organization for enough funds to start up your business, you are asking for small sums from many people. Crowd investing has become much easier in the present due to the Internet, since crowd investing platforms make it easier for you to get in touch with potential investors.
Advantages and Disadvantages of Crowd Investing
Similar to angel investors and indeed any other financing tool that is available to you, crowd investing also has its upsides and downsides. Here is a list of some of those issues that must be examined if you are considering whether to use crowd investing or not:
* Crowd investing is mainly useful because it can help you get funding even if your start-up is considered non-viable by more traditional investors. Crowd investors tend not to rely on cold logic to dictate their decisions but instead opt for emotional responses. This can be helpful if you have what you believe to be a revolutionary idea that traditional lenders are not willing to gamble on.
* Unfortunately, crowd investing will only net you small amounts of money, which simply might not be enough for you to get your business up and running.
* Crowd investing also requires you to put your idea up on the Internet and provide enough detail so that people become intrigued enough to invest. This can be detrimental if someone with better financing sees your idea and uses it to start a business before you can do the same.
Angel Investors vs. Crowd Investing
First, it must be mentioned that neither angel investors not crowd investing are comprehensive solutions that can help solve all of your funding problems. Like any other funding method if you are trying to start up your own business, you should consider both angel investors and crowd investing as tools in a tool kit. Useful and even preferred tools perhaps, but nonetheless tools that are meant to be used alongside other tools. Otherwise, you are willfully missing out on the benefits that other financing tools, such as loans and taking on business partners, can provide you and the boost that these benefits can be for your start-up business.
With that out of the way, the question of whether you should use angel investors or crowd investing depends on your unique circumstances. If you are trying to get enough money to start up a business, then you’ll probably want to go with an angel investor. Alternatively, if you are trying to get enough money to run a small but interesting project, then you might be able to get by with using crowd investing.
Stacy Pruitt worked extensively as a foreign exchange broker and is now trying her hand and freelance writing where she can share her insights. Her articles appear on various trading blogs and includes this forex directory.