McCombs School of Business
Knowledge

Resources and Funding
Where to Go for Funding

Before looking to the financial markets for funding, a hard, realistic look must be taken at the inventor's business idea. Sure the inventor may think the idea will work and make a lot of money, but what will other people think? More importantly, what will banks, venture capitalists, and angel investors think before investing their money into a new idea?

The banking industry is the solid establishment of our country's financial system. Therefore, the nature of banks is to be risk-averse. Large corporations with millions of dollars in assets and a solid history can loan large amounts from banks. But most banks will not loan money to a starting company with little or no assets. A would-be entrepreneur with a promising idea and no business track record would be laughed out of the building if he walked into a bank asking for money. Ninety-nine percent of the time banks will not loan to a new company or inventor unless they have some sort of collateral, for example a patent.

Another method of funding is to look for venture capital. Many venture capital firms invest billions into new business ideas every year. If many million dollars are needed to start a company, venture capital is the way to go. Depending on how much money an inventor may or may not need, angel investors might be the best source of cash.

Angels are wealthy, or accredited, individual investors looking for spectacular returns traditionally associated with private equity investing. Instead of putting their money into 401ks, the stock market, or savings accounts, Angels like to help new companies grow in hopes of bigger returns. Inventors turn to angels when venture capitalists get tight-fisted and because it is sometimes easier and quicker to get money from individuals. Also, companies turn to angels for smaller amounts of money.

Angel investors can be more laid back than banks and venture capital firms, but inventors still need to answer to angels' financial expectations.


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Check out the Silent Timer Web site to see the product Erik took to market. Contact him with any questions.

 

 
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