The amount of capital needed to start the average business these days isn’t as massive as what entrepreneurs were seeking several years ago. According to a recent study, 40% of new businesses in the UK last year needed less than £10,000 in start-up funding and about two-thirds of new ventures required under £100,000.
Part of the reason for this streamlining of capital is that businesses have replaced manpower and extravagant marketing campaigns with technology and a more hands-on operational approach. Another is due to the financial crunch banks have imposed in lieu of the global recession. Entrepreneurs are no longer padding their start-up costs, making it easier to secure smaller loans and investments.
The natural inclination for many entrepreneurs is to first turn to friends and family to help fund their new ventures. While this is the ideal situation - with low-to-none interest rates and deadlines - loved ones have also felt the same economic pinch and don’t have the savings they once did.
Instead, more entrepreneurs are being rescued by angel investors, private investors who offer small amounts of money with lower return rates than venture capitalists, banks or shareholders. Angel investors usually expect the company to have a 5 to 10 year exit strategy. Entrepreneurs can develop a partnership with these business angels based on each other’s needs - some angels take a more managerial role, while others can sit back coolly and ride the investment to term.