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If you’ve ever tried to approach a traditional bank for start up financing for your small business, you know what a difficult and mostly unsuccessful process it can be. Banks are in the business of risk management. They see start up businesses as unproven commodities and therefore risky. Assuring a bank that their capital is safe and that your business will generate enough free cash flow to repay the loan with interest can be an overwhelming task. After all, would YOU lend YOU money?

Luckily, there are other sources of start up capital that small businesses with great industry-changing ideas can tap into. Some of the world’s most successful companies were started with capital from non-conventional sources. Likewise, many world-class business plans have withered and died on the vine from lack of funding. Two non-traditional sources of financing for start ups are venture capitalists and angel investors.

Venture capitalists are individual or corporate investors who are willing to assume more risk in lending money to small businesses with the hopes of garnering a larger reward if that business is successful. They can lend start ups anywhere from a few thousand to several million dollars. A typical venture capitalist will review a company’s business plan, research the potential market for the product and service, and offer financing backed by a slice of the pie if the company is a success. Ultimately, a venture capitalist becomes your (sometimes not-so) silent partner who has a vested interest in the success of your business because they own a piece of it.

What do you do if the venture capitalists all take a pass on your great business idea? The first thing you should do is to re-evaluate your plans. Take the feedback that you have received from bankers and venture capitalists and re-tool your plans to have the best shot at eventual success. Treat these rejections as sources of free business advice. You’ve had a chance to showcase your business in front of experienced lenders and they have outlined to you why it doesn’t work for them from a risk management perspective. Should you give up at this point? No way. Make room for the angels.

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Written by: Angie Mohr
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