Small businesses at the start-up or early stages of development often seek to raise capital from investors. Usually because of their size and the amount of money needed, funding will come from private investors. Since the companies are not publicly traded, the investor will be making a private investment as an individual.
Friends and Family
Private investors usually come from friends and family first. These are the people who know the person starting the business and believe in them enough to invest money into the venture.
Angel investors are people who are already financially secure and will provide funds to a new business. They participate in the success of the company and will serve on the board of directors but generally don't interfere with basic business management.
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Locating Private Investors
Beyond speaking with friends and family, network with accountants and estate attorneys who have a long list of clients who have money and may need a tax deduction. There are also numerous online networking forums that offer to introduce angels to businesses.
Contracts with a private investor will include all contact information, the amount invested, the responsibilities of how the money will be spent and what the investor can expect as a return on investment. They can be simple or complex depending on the parties.
Usually private investors (other than friends and family) will be accredited. This means they have a net worth of at least $1,000,000 with at least $200,000 in income annually.