Business capital investments are funding invested in a company by a lending institution or affluent individual. Business capital investments for start-up companies are provided by either private or non-private sources. Apart from friends and family, private sources largely consist of “angel” investors. Angel investors are affluent individuals with previous business experience. They typically consist of former CEO and business owners. A primary non-private source would be an SBIC (Small Business Investment Company). The investment is used by the company to get off the ground and to start growing and generating revenue. The company later uses this revenue to repay the capital invested in the business, sometimes up to 10-20 times the original investment in the case of some angel investors. Sometimes the investment is given in exchange for equity in the business being funded.
Angel investors (capital placement firms) – These “private individuals” usually consist of successful entrepreneurs offering their experience, expertise, and a large network of contacts. They usually take less time to provide funds and due diligence can be less involved. They are also more patient and willing to wait longer to receive a return on investments than other sources of financing like venture capitalists.
SBIC’s – Most SBICs are owned by relatively small groups of local investors, although many are owned by commercial banks. SBIC’s tend to invest in a wider range of industries than private equity. Additionally, There is the built in security knowing the SBIC’s are regulated by and accountable to the SBA who guarantees their pooled investment debentures.