You are looking for a lender, but are stuck with traditional financiers. Maybe an informal investor can help you. This individual investor often has money to finance the start of your business.
What is an informal investor?
Informal investors are private investors who have enough money and experience to give young, unlisted entrepreneurs a substantial financial injection. They are not as strict as venture capitalists when it comes to assessing a company's potential, but they can still be very helpful in getting a business off the ground.
What is the advantage for entrepreneurs?
In addition to financial assistance, informal investors usually offer valuable advice and mentorship. And thanks to their network of contacts, informal investors can also help entrepreneurs connect with other important people in their business network.
Why does an informal investor invest?
What does an informal investor gain from investing in a startup? The most basic reason is return. Every investor wants to see his invested capital multiplied. But in addition, many informals - often themselves former entrepreneurs who have sold their successful businesses - miss the game of entrepreneurship. And in addition, for some investors, the "giving back" idea also plays a role in entering into a mentorship with these entrepreneurs.
But for an informal investor to invest in a business, he must be confident that the business case has a good chance of success. He must also feel comfortable with the risk he is taking, because there is no guarantee that the investment will pay off. If everything does go according to plan, it can yield a significant return.
How high is an investment from an informal investor?
The average amount that an informal investor puts into a company is between 50,000 and 250,000 euros per investment. The amount depends on the equity of the investor and the risks and growth potential of the company.
Moreover, the world of informal investors often still consists of an old boys network. And therefore it sometimes happens that several investors are willing to provide a company with a financial injection. For entrepreneurs, however, the question is whether they find this desirable.
How do you come to a contract?
Unlike financial institutions, informal investors are much more about a personal click with the entrepreneur. A good relationship and trust between both parties is therefore the first step in entering into a contract. It is therefore important that the relationship is good and that there is trust between both parties.
In many cases, the informal investor wants to have insight into the business plan, financial projections, competitive advantage and growth potential. And in addition, there must be confidence that the entrepreneur is serious about the business. A contract will then specify the terms on which the investment will be made.
What are the disadvantages?
The biggest advantage of working with an informal investor is also the biggest disadvantage: the personal touch. Because even though informal investors can be a great help to entrepreneurs, disagreements or well-meaning recommendations can lead to a disturbed relationship between the two.
Furthermore, an entrepreneur can easily become dependent on the informal investor for capital and other support, which is not always available. And finally, because the informal investor has no legal or fiduciary obligations to the entrepreneur or the business, he does not always have the entrepreneur's best interests at heart.
But if you lay everything out well in a contract and are on top of managing expectations, this can be a good way to get funding for a business without going through traditional channels, such as banks or venture capitalists.
