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A unique stepchild to the mainstream VC is the VC Angel. Many Angels are typically characterized as entrepreneurs who, earlier in life, were struggling start-up entrepreneurs. They succeeded and became independently wealthy. They see a start-up venture reminiscent of their earlier days. The Angel is attracted to the personality of the individual entrepreneur, and wants to become personally involved to help this person succeed just as he or she did in years gone by. Another distinction of many Angels is that they are not necessarily driven by the craze of the day. High technology and new product development are not the lone avenues they consider. For example, I recall an Angel who worked with a young man possessing great skills in the field of cosmetic surgery, and would be found along side this person as he tried to build the enterprise. The angel even attended entrepreneurial training classes with his protégé.
Borrowing from family or friends can often be the easiest way to get the money, but so often results in being the most disastrous of sources. Yes, there are many examples where family and extended family members have succeeded in securing and paying back loans. But the ones that fail receive so much fanfare. The family unit, to many, remains the most cherished of human relationships. When it breaks down it has the potential to affect our entire lives, business included. I have encountered so many clients and inquiries regarding business ventures going bad and family members find themselves at opposite ends with mothers, fathers, sons, daughters and in-laws. What makes this so difficult for my profession is that we are responsible for counseling and advocating our client. We are not in the business of family counseling. So often, decisions and responses are based more on emotion than on business sense.
There are other avenues to consider, including the use of credit cards, factoring of accounts receivable, and credit unions, but the ones noted above are the more common alternatives, especially for start-ups. In the end, banks are most conservative and for very legitimate reasons. VC's look for unique, economy-driven, higher-risk ventures offering very high returns on the investment in a short period of time. Angels, not easy to find, are the exception. Families and friends present the most 'red flags'. No source is easy to approach. Each has its advantages and disadvantages. You need to decide which is most advantageous for you, and presents the likeliest opportunity for you to secure the funds.
© 2000, Carroll Stephen Windhaus
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