B2c investors provide early-stage funding in exchange for ownership stakes in companies selling products or services directly to consumers, typically via venture capital firms.
Investors need a clear financial plan and goals that are achievable, and must demonstrate an in-depth knowledge of the market landscape.
Angel Investors
Angel investors provide startups with capital in exchange for equity. Angels often possess significant business expertise and provide invaluable mentorship and management assistance, as they focus on the business model and team rather than its underlying technology. Furthermore, these investors tend to take greater risks for higher returns than venture capitalists.
Most angel groups require entrepreneurs to submit an executive summary and business plan before being considered by them, often including an application form to make this process more efficient. Applicants should expect to spend one to two weeks in pre-screening phase; some angel groups may require further intellectual property research and request non-disclosure agreements upon initial meetings.
Finding the appropriate angel investors is critical to startup success. Create lists of potential angels using LinkedIn. Once your list is created, prioritize those willing to sign a non-disclosure agreement and can introduce other investors.
Investors typically invest through convertible debt or equity, depending on their preference, with many syndicating to increase investment power and reduce risk. Some angels use SAFE notes created by Y Combinator in 2013 to streamline funding processes.
Crowdfunding
Crowdfunding is an innovative way for individuals and companies to raise capital to finance a business venture. Through online platforms such as Republic, investors can easily contribute small sums of money towards projects or companies they support – in return they may receive either cash payments or equity in return – making early stage investing accessible even for average people.
Crowdfunding has become increasingly popular for small consumer-facing businesses like restaurants and breweries, especially ones with loyal customer bases or novel products. Crowdfunding carries certain risks; for instance, many new businesses fail, leaving investors to incur substantial losses on their investment.
Promoting your campaign as widely as possible is also key to meeting your funding goal. Use social media and email newsletters to spread links to your crowdfunding page, contact bloggers who might write about it and increase the odds that you reach it!
Crowdfunding platforms that operate like broker-dealers often have access to accredited investors that can view your campaign. This reduces search costs and transaction fees significantly while protecting unsophisticated investors from placing their savings at risk.
Venture Capital
Venture capital financing is an increasingly popular type of private equity funding available to emerging and new companies. Venture capital offers startups with high growth potential yet limited access to capital markets or bank loans a source of equity financing that allows them a say in management decisions made within the company, unlike traditional debt financing which usually only grants equity ownership of the business itself in exchange for money. But venture capital may not always be right for all businesses as its acceptance may require giving up some ownership and control rights in exchange for accessing this type of funding.
Venture capital investors typically invest in firms led by a general partner (GP) and funded by limited partners (LPs). This partnership structure offers tax benefits such as pass-through status and participation in investment profits that helps align the interests of both GP and LP shareholders while simultaneously helping lower legal fees and expenses associated with investing in venture capital funds.
Acquiring venture capital can be an arduous process, so entrepreneurs should set aside enough time to develop an effective pitch deck and business plan, search for potential VCs, and schedule meetings with them. At these meetings, VCs will look for signs that they feel comfortable with your goals, market potential for products, milestones achieved before disbursing subsequent rounds of funding.
Other Sources of Funding
There are various sources of funding for businesses. These include equity and debt financing – with equity financing enabling businesses to increase their valuation in exchange for partial ownership; debt funding creating liabilities which must be paid back with interest, while grants and scholarships from non-profit organizations or government agencies don’t require repayment either.
Fundraising can be difficult at any time, but fundraising for a B2C startup is especially daunting due to a gloomy macroeconomic outlook and because such start-ups tend to have greater capital intensity and lower margins than their B2B counterparts.
Investors face another difficulty when trying to forecast consumer demand, which can change quickly and create issues for companies as well as investors. Furthermore, marketing costs for B2C startups can be high making it harder to generate a return on investment which in turn may reduce revenues and profitability, damaging investor trust in the business.
