Ethics

How do I find equity investors?

Equity investors are everywhere. Friends and family along with private investors are among the most common places to find equity investors. Most people do not like to ask friends or family because they feel like they are asking for a handout. Although friends and family would be the easiest place to look for financing, going to a private source may prove more beneficial. Private investors or "Angels" (Scarborough & Zimmerer, 2006) are generally going to be a better source of investment. These angels are always looking for a place to invest their money with a promise of a grand return.

Where do I start my search?

Start your search for investors by first asking friends and family. Explain to them all the details upfront. The next step is to seek out the private investors (or angels). To find them, you need to ask friends, attorneys, banks, stockbrokers and other business minded people to help locate the private investors. Make a connection first with the source before you start calling to the investors. Making direct calls to an unknown investor may deter them from considering your company as a potential investment. There are also many groups that have been created for this very purpose. Searching the internet for angel groups is also a very easy way to "get your foot in the door". Most angel groups would have a group of business owners "pitch" their idea to the angel group. From there they invite potential businesses to show their business plan and make their official offer for investment help.

1. Which equity sources would you recommend to Rhonda? Explain.

I would recommend using the private investors. My theory is simple. I never mix business with family. Although they would be great support initially, if my venture ever went sour, I would feel a bit of animosity between myself and my family. Using outside capital financing such as the angels programs, I would feel more of a business relationship. Keeping everything on a business level is much easier than trying to keep business and family separate. A big concern for me would be that families would want to help you succeed in your business just as much as a private investor but with the family, they may be investing more than they can afford to lose. Private investors would be the soundest choice in this situation simply because they would have more to invest initially and they would be a prime source of continual financing.

2. What are the advantages and disadvantages of using equity capital?

Investment