As anything else business plans are intended for a specific audience. Preparing your business plan with your audience in mind is one of the keys to getting the funds that you need. Here is a list of your funding options. Keep in mind that these are some of the major funding options available, but of course, if you are creative you may find other sources as well. Chances are, no matter what the funding source is, you will need a business plan, so

Family and Friends – Many startups get their initial funding from friends and family. Although this group of people may not require a business plan, having one will help you to convince them about the potential success of your business idea and it will give you more credibility as to your competency in regard to the business. All other funding options require that the entrepreneur has some vested interest in the company by putting some of his own money (family money counts) into the business and therefore family and friends is a good place to start to get that first round of funding that will allow you to move on to bigger investors.

Angel investors – Angel investors are individual accredited investors, who provide seed money. They may invest individually or as a group. They are high net worth professionals who usually have experience in the industry that they are investing in. Although there is no official rule as far as what industries this type of investors prefer, the trend is towards high-tech, high-risk, high-growth, high-return ventures. Many serve as business advisors to the new venture and can be an extremely valuable resource granted that the right investor is matched with the right business. Although angel investors invest in the early stage of a business, most likely they will want to see some kind of a proof of concept or letters of intent from potential clients of the startup and will not invest in a mere business idea. Having some initial seed funding will definitely be of a plus to the new venture when seeking funds from an angel investor. Angel investors will require equity in the company, which varies between 10% and 50% depending on the amount of funding needed and the deal that the entrepreneur is able to negotiate with the investor. Typically they invest anywhere between $25K to $1.5 million in a new venture, but depending on the perceived potential they may invest more. Angel Investors aim to generate a return through an eventual realization event of the company such as an IPO(initial public offering) or a trade sale.

Seed Funding Companies - These investors are similar to the angel investors in that they too invest in the early stage of the startup company. However, similar to venture capital firms, known also as VC firms they are organized as a business, and invest in a portfolio of firms in a specific industry/industries, rather than occasionally investing in new ventures. Seed firms differ from angels and VCs in that they invest exclusively in the earliest stages of the company —often when the company is still just a concept. Angels and even VC firms occasionally do this, but they are more likely to invest at later stage.

Venture Capital Funds – Venture Capital firms are organized as funds, similar to mutual funds, and they typically invest third party money. Most don’t provide early stage investment, although they are some venture funds that are set up to invest specifically in early stage companies. Venture funds have a diversified portfolio of companies that they invest in and aim to get a large return on their investment from approximately 1 out of 10 deals. VC fund managers are active in the management of the business and most likely will require a seat on the board and may seek majority control in the company by requiring more than 50% equity in the company. The investment size typically ranges between $1.5 million and $10 million. Like angel investors, VC funds aim to generating a return through an eventual realization event of the company such as an IPO or trade sale.

Related posts:

1. Funding Options from Loan Sources
2. Before You Begin to Write Your Business Plan…
3. Why You Need a Business Plan