According to This is Money (2013) there are now 345,271 millionaires in the UK and according to some estimations only 5% of these millionaires would class themselves as full-time Private Investors.
According to research, private investors are twice as likely to believe they have a greater knowledge of investments than their less affluent counterparts, where one in three wealthy private investors would say they have strong investment knowledge, compared to those one in six non-wealthy private investors in the UK.
Private investing or Business angel investing in the UK is certainly growing in popularity. Many private investors are looking to invest in seed and early-stage investments as a result of low interest rates in Banks, diversification from property investments (most investors are really worried about interest rates rising and property prices decreasing) and would prefer to help and build a substantial profitable business from ground up.
The question still remains on how entrepreneurs and small businesses can find Private Investors looking to invest in their Business Venture or Start-up’s in the UK. Enter Venture Giants into the fold, a niche operator that brings UK Small Business owners together with vetted private investors
If you are a small business owner / operator based in the UK and require investment to expand your business, there are various options available for you out there that include Loans or Government grants such as the Regional Growth Fund. However, some small business owners (or entrepreneurs) do not just require capital investment, they also require knowledge, mentorship and assistance on how to jump over hurdles – and this is where finding a Private Investor for your business can really make all of the difference with business survival and growth.
Raising Business Investment from Private investors is a different kettle of fish to Government Loans and Grants, especially as it can be very challenging in locating genuine private investors to send your business proposition to.
There are currently many articles written on raising personal loans and also on Government funding out there but the area of finding private investors and raising private investment for your business venture is a bit of a grey one on the internet today.
We decided to look at the different ways entrepreneurs today can find Private investors, including sending random INMAILS to private individuals on Linkedin and also reviewed an established private investment network called Venture Giants that was roughly the same cost of using Linkedin.
A private investor can be a company or an individual, but Private investors are generally classed as high net worth individuals that choose to invest their own money and experience into businesses, and their investment ranges from £25,000 to £500,000. There sole aim is of achieving significant financial return from a potential exit via a trade sale of the business.
Start-up businesses, small businesses in their infancy and businesses undergoing financial blockade often look to private investors for funding. The amount of money needed from such business can be varied and hence will require private investors at one stage to assist in the business ventures establishment, growth or development.
A private investor can also fund individuals finding it difficult to acquire a mortgage or loan through banks.
Before approaching Linkedin or thinking of using a private Investor network like Venture Giants it is really important to approach your friends and family first. They know your background, and will be more willing to invest in you over a stranger they do not know. Finding a private investor in your family or friends’ circle is an option.
Where you have a large family and friend network, using a Crowd funding site like Kickstarter is again another option, and this is a great way to post a proposal, and then send your Kickstarter proposal to all of your family and friends via share functions including, SMS, email, twitter etc. Family and friends can invest small amounts, and with the loosening of FCA regulations in the UK, you are now allowed via these sites to solicit an investment from your friends. Be warned, that some crowd funding networks will demand that you are ONLY allowed to post on their private investment network and not use any other websites, and they will also be looking to take a commission of upto 7.5% add legal fees. They also demand thatz you raise the ENTIRE investment amount you are looking to raise – and questions made by their users are public, and you will be open to scrutiny and these questions and answers that you post will be seen by your Family and Friends and it nt surprising that some entrepreneurs have folded it in after such scrutiny.
As an alternative to Crowd Funding, there are many private investor online networks that work to help entrepreneurs and investors find potential opportunities.
One private investor network we looked at was Venture Giants which was one of the first private investor networks set up in the UK that specialise in matching serious angel investors to promising start-up proposals and a gamut of projects requiring different levels of funding, including seed investment, growth capital, and R&D funding.
Venture Giants has found over £2,000,000 of funding from Private investors for UK entrepreneurs and do not charge a commission. The prices of using Venture Giants varied from £99 to £249 depending on the amount of investment you were seeking to raise, and this fee included them sending an entrepreneurs funding proposal to hundreds of vetted private investors, and it included unlimited investor contacts.
Venture Giants seemed to have positioned themselves as the Alibaba of Private investment for Private investors and Entrepreneurs in the UK.
According to a recent poll conducted by Venture Giants, over 72% of its network of private high net worth individuals, UK based millionaires and even investors from the Sunday Times Richlist believed there was still significant ‘potential for profit’ by investing in UK Start-ups over traditional investments.
As many private investors operate locally as this familiarizes them with the local businesses. Such familiarity gives private investors a greater understanding of a company, its mode of operation, reputation, and the management involved. They are more knowledgeable about the business they are investing in and aware of the inherent risks this way. Several private investors prefer to fund local businesses than business entities not within their purview. Because of this most private investors find valuable investment opportunities through online private investor networks.
A private investor can be from your family, or a friend. Such private investors are people close to the business owner with enough confidence in the owner to fund the business. Investment can also be made by private equity investors, who provide capital to businesses that are not on public exchanges or are not publicly traded. In addition to funding the business, private equity investors lend other invaluable assets such as skills and contacts.
Another popular form of private investment comes from angel investors. An angel investor, also referred to as informal investor or business angel, is an individual with an excellent financial background, which he/ she uses to provide the necessary funds that start-up businesses require. Angel investments are offered in return for convertible debt or ownership equity. There is a very high rate of risk involved in angel investments. As such, angel investors expect high returns on their investments.
A number of angel investors come together forming angel networks, bringing to such forums their invaluable research assets and combined monetary assets.
Some private investors may choose to serve as passive contributors, investing only their money and not associated with the business in any other way. Most private equity investors are interested both in the potential of the business owner as well as the business growth. Since private equity investors are usually successful entrepreneurs, they bring into businesses such benefits as their invaluable expertise. The invaluable contribution of private equity investors and the relaxed format of payback terms and conditions translate into a high expected rate of return on investments for fund receivers.
There are several benefits in going for private equity investors. Many entrepreneurs have come to prefer private equity investors to other forms of funding, and the number of advocates is fast increasing. Benefits of approaching private equity investors for your business ventures:
Payback terms in private equity investments are less demanding when compared to conventional funding methods such as venture capital. The amount of time involved in meeting private equity investors, following their procedures, and ultimately receiving funds, is substantially lesser than that involved in conventional venture capital firms. Given the immeasurable significance of time in business, private equity investors present a better option for funding.
Private equity investors are less involved in the management part of the business, involving aspects such as target setting and recruitment. This provides entrepreneurs with greater control.
Lesser efforts on part of the entrepreneurs when compared with venture capital funding. Businesses need to put in substantial efforts to find the right private equity investor, though.
Finding the right private investor is fundamental to the success of an entrepreneur’s venture. Once you find a potential private investor, you are faced with the greatest challenge of convincing the investor to put money into your project. For this, you need to be successful in inspiring trust in private investors regarding you and your business. Often private equity investors refuse funds because they are not even adequately knowledgeable of the individual requesting for funds. It is important that the private investor knows enough about you to believe in your capabilities. It is your responsibility to get the private investor well-informed.
Most entrepreneurs often consider getting private investors as a rudimentary finance process wherein they would be submitting necessary paperwork and waiting for the loan to click. The first and foremost step to attracting private investors is to consider getting funds as a meticulous marketing process. You need to market your project just as you would market a product, if you want to make it a reality. You need to explain to private equity investors why they should fund you when there are numerous other proposals out there.
An effective business plan that expounds on your business objectives, ability of the management to realize the objectives, and the immense monetary potential therein for the investor, is essential to attract potential private investors. The business plan should also detail how the business would pay back the money to the investor. With persistence and right efforts, entrepreneurs can find the right private investor and make a success of their dream projects.