It can be difficult for Australian entrepreneurs to obtain business loans or overdrafts to fund new business ventures. Venture Capitalists and Business Angels provide an alternative option.

Both Venture Capitalists and Business Angels offer unsecured funding in exchange for a proportion of the company’s shares. The expected rate of return on their investment will be high, sometimes in excess of 25%, and there may be other conditions attached to the investment, but equity finance can provide a useful injection of capital to grow a business.

Venture Capital firms are run by professional investment managers, and use aggregated finance from various sources including insurance companies, superannuation funds and individual investors. These investors benefit from tax concessions, offered by the Government to encourage investment in the small business sector. The investment risks are reduced by spreading funds across a range of companies and sectors. Venture capital firms also require a level of involvement in the companies they invest in, such as representation on the management board. The amounts invested in individual companies range from a minimum of $500,000 up to $20 million or more.

For smaller levels of investment, Business Angels might be considered. These are individual investors, often retired businessmen, who typically invest amounts ranging from $100,000 and $1 million, again in exchange for high rates of return. Although less likely than Venture Capitalists to require a formal management role, Business Angels can often provide valuable advice and business expertise. Details of programs and organisations offering equity capital matching services to Australian entrepreneurs and investors are available at http://www.mmv.vic.gov.au/AccesstoVentureCapital.

It is not easy to secure equity finance from Venture Capitalists and Business Angels, these investors consider many proposals for funding and the majority are turned down. Whether you decide to apply for equity or debt capital funding for your business, you will need to put forward a very convincing argument and a strong business plan.