Receivables Discounting: Things You Need To Know
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This article explains using angel investors as a funding option, detailing its pros and cons.
Angel investors, also known as business angels, are high-net-worth individuals who put up funds for early-stage business ventures/startups in exchange for equity.
In many instances, angel investors have developed a personal or professional relationship with you (e.g. being a friend or mentor) prior to investing in your business. As such, they provide financial backing to your startup company because they have faith in you.
Growth is a common reason for businesses or startups to obtain funding. Advertising, new hires and product launches — all these need money.
If growth and expansion are items on your company’s roadmap, then funding is something you need to learn about.
Alongside finding friends and mentors who have a personal or professional relationship with you, you can also find angel investors through the following means:
Revenue-based financing (RBF) is an alternative financing method in which companies receive funding based on future revenue.
In revenue-based financing, RBF platforms provide funding to companies without getting equity in return.
Rather, RBF platforms would share a portion of your company’s revenue until a predetermined amount is paid back. Typically, the predetermined amount is assessed at the capital plus a small flat fee.
Pre-revenue companies may not be eligible. You need to have recurring revenue in order to apply for and repay RBF funding.
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In the past, startup founders and business owners were hesitant to raise funds from investors for fear of shared ownership or borrow money because of the huge financial pressure on repayment.
By taking away the most unfavourable feature of equity financing, revenue-based financing has found favour with startup companies in recent years.
Following the ‘grow now, pay later’ approach, these companies get the funding first and enjoy flexibility in repaying RBF funding with a small percentage of their monthly revenue later.
If you want to learn more about accelerating business growth with RBF funding, leave us a message or sign up to get a preliminary offer now!
Unlike venture capital firms, angel investors are generally more willing to work with companies without strong track records, such as those in the proof of concept stage.
If your business is still in an early, pre-revenue stage, business angels may be what you are looking for.
On the minus side, finding an angel investor who trusts you and whom you trust is not easy. It may take months or even years to find the right fit for your business.
Besides, raising funds from angel investors has an equity price tag attached. Therefore, it would be best to consider all ramifications of this funding method before kicking start your search for business angels.
To help you compare angel investing and revenue-based financing, Choco Up has compiled the following table:
Interested in learning more about raising capital for your company? Check out the following guides we prepared for you:
Grow your business with Choco Up
Unlock funds by using your accounts receivable as collateral with receivables discounting.
Bank loans and equity financing can support your business goals in different ways. Explore the difference to know what’s the right next step for you.
