Whether in technology or healthcare, start ups or global brand names, many companies receive initial funding through private investments (such as seed capital or venture capital). In a private investment, young businesses work closely with investors so that the two are on the same page about the company’s growth and development.
Private investors are often wealthy individuals looking for a profitable return in a viable business venture, and also known as business angels or angel investors - will also offer networking opportunities and business connections or sometimes take on a management role in their invested company. They are often looking to increase their portfolio of companies and their expertise in the sector overall. In some countries they also may be known as limited partners too.
While other sources of business funding exist, like bank loans and government grants, private investors are willing to take risks on developing companies that many financial institutions are not (including international companies, whether in Europe, Asia, Africa, North America, South America, Australia and more). Private investment funds are also often received quicker than funding from venture capitalists - an individual, firm or pool of individuals who invest large sums of money in already-established businesses - because less due diligence (investigations or audits of a potential investment) is involved.
In turn, private investors are usually more patient about receiving a return on their investment than venture capitalists or large firms knowing that these investment opportunities come with a lot of initial volatility.
Private investors are key for new businesses looking to raise start-up capital. Not only do private investments bring financial help to the entrepreneur, by finding new fundraising options but often these investors can provide expertise and contacts that the new business may need in order to get to the next level.
The amount of investment from private investors varies greatly, as investors based in Australia and overseas range from a variety of budgets and a variety of industry sectors. Many investors will look at their own portfolio companies interests, whether the idea is competitive / innovative in their minds, and sometimes where the new business is located.
Many private investors congregate around the major cities.. However, with connections easier to maintain over long distances, online partnerships have been increasing so where your business is based may not be such an important factor any more. This can be beneficial since real estate costs and rent can be high in some of these premium locations.
Private investors usually make several investments, and often realize that not all of them will be winners. Such investments are high risk, high return, but if the private investor is as confident as you are in your idea, this form of investment can be the best way to bring your product or offering up to the next level.
Private investors are usually successful entrepreneurs themselves, with industry know how, so they will understand where you're coming from. Many are often backgrounds based in start-ups, while some might be transitioning from being an institutional investor, which is a larger scale company that invests on behalf of a group. Larger scale versions of these include hedge funds, mutual funds and global private equity funds.
These individual investors are also more likely to invest in private companies that are just starting out because their goal is to make a big return on their equity investment. Often, these types of private investors jump in right when a business needs the money and additional liquidity the most to increase their chances for longer term value creation.
In many cases they provide the finance for expansion when traditional avenues for finance aren't open. This is because traditional financial institutions such as banks, venture capital firms and investment companies aren't normally keen on investing in a business without a solid track record. Even if you can secure a business loan from a bank the interest rate may not be preferable for a young business.
You might find that venture capitalists and private investors are similar in that they will both make private equity investments into a business. In some cases both will look to gain a share of the business in terms of partial equity, or they will look for a return on their investment.
In many ways private investors have a similar outlook to those who like to invest via crowdfunding. They spot a good idea and want to invest in the project or person. The main difference is that when raising capital via crowdfunding you will likely end up with a lot of different people looking to invest in your business in return for some kind of benefit. Some of the benefits received from crowdfunding campaigns include getting discounts on products or services or even early access to a new product release. Whereas, private equity investors will invest much more money since typically these individuals have a high net worth so will normally look for some equity from the business itself.
This source of investment can be a benefit to business owners since these types of investors look out for small businesses and entrepreneurs just starting out who have a good idea and a solid business plan. They will look for an initial valuation to judge how much of their own money they will want to invest.
Sometimes private investors will want to be on the board of directors and play an active role in running the company and supporting the management teams. Whereas, other private investors prefer to take a backseat to the proceedings and simply be a source of investment.
Of course, markets change over the years. Current trends include sustainability and alternative investment along with ESG, known as "Environmental, Social, and Corporate Governance" which is how a company might be seen in regards to social and environmental factors such as impacts on climate change and how this may reflect the company (and therefore the investment) in the public light such as press releases, media coverage and social value of the brand. Overall though, new business is always an attraction for various types of investors due to the peak potential. Everyone wants to be part of the next innovation or idea that takes off for instance, but also want to be seen as making the right investment overall in the current environment.
Our own Angel Investment Network features thousands of investors based in all parts of the world. We have over 30 branches worldwide, and have helped connect businesses to private investors throughout the last few years, some of which have become buy outs, IPOs or parts of public companies.
Our network features thousands of potential private investors that are looking to invest in the right idea. So if you have a business idea, or start-up and need investment to take it to the next level, you might find that the Angel Investment Network is the answer you're looking for whether a local or a global investment opportunity.