I need money. Should I target a VC, angel or a bank?

Dear Aunty B,

I have bootstrapped my business and now have about 20 staff and am profitable, but I now need to take a second round of funding to fund my expansion plans and technology development.

I figure I need less than $1 million to take this business global. Who should I target? A bank, VC or business angel?

Simon P,
Sydney

Dear Simon,

I met a VC the other day, and on the back of his business card is an IRR (internal rate of return) calculator. That about sums it up. A venture capitalist is investing other people’s funds into your business. He/she is under pressure to get a return. That means you are under tremendous pressure to provide a return.

While it means you can access millions to go global very quickly, it can also place huge pressure on your business and force you to make short-term decisions that may not be in the best interests of building the most robust, sustainable business you can.

If that suits your business, great. Start to approach the VC networks.

But given that you need less than $1 million, I would consider a bank or a business angel. The advantage of a bank is you keep all your equity. The disadvantage is that you usually have to provide your house as security – and you have to pay interest. Many people who are highly successful and sell their businesses for a lot of money, look back and wish they had taken a bank loan so they still owned all the company.

A business angel is also a very attractive option. They are wealthy individuals who often operate in a small group – you don’t end up with one angel but a group of angels as shareholders. These angels often bring different skills, networks and can open a lot of doors. They are investing in businesses for fun – as well as wanting a very good return on their investment.

How do you find angels? Hang out at industry functions or entrepreneur gatherings where they talk and approach them afterwards. Ask them for a quick coffee and if you can call them. If they can’t help you, they may pass you around their informal angel networks.

Hope that helps Simon,

Your Aunty B