You have been building up your business for some time, your company is doing well and now the time has come for you to grow further. Then it may be interesting to attract an (additional) investor. At first you might think of a bank or investment company as a capital provider. But you could also opt for an informal investor. These private investors bring specific advantages to help you realize your ambitions.
What is an informal investor?
An informal investor is an investor who invests their own capital in one or more businesses. So they are private investors, different from a bank or investment company. They usually have a lot of practical experience as entrepreneurs and have their own capital with which they want to help other entrepreneurs move forward. Informal investors may have different reasons for investing in a company. The amounts invested also vary. On average you should think of an amount between 50,000 and 200,000 euros, divided over investments in several companies. Informal investors are also known as "business angels," although this designation is mainly used for investments in startups or the early growth phase.
Difference with other investors
In particular, what distinguishes an informal investor from other investors is their knowledge and experience as entrepreneurs. In addition, as shareholders, they are more involved than average with the companies they invest in. This is possible because they usually invest in a limited number of companies. Moreover, the fact that they invest their own money in the company brings with it a greater personal interest than is the case, for example, with a bank or investment company.
When to choose an informal investor?
Informal investors are especially interesting if you need an experienced partner who can help you take the (next) step that comes with the necessary risks. As mentioned, they bring a lot of knowledge and expertise that you can use to further develop your business. They also usually have a large network. However, their involvement can also have a downside: these investors often have clear opinions, and as an entrepreneur, you need to be open to that. But if you value their help and advice, you can benefit greatly from an informal investor.
The decision-making process prior to the investment is often more informal and less time-consuming for an informal investor. This type of investor often acts on gut feelings, lets things sink in and then makes a decision. The quicker decision-making process also allows entrepreneurs to move faster.
How do you find and choose a private investor?
When finding the right private investor, it is wise to consider what specific expertise he or she brings. Think carefully about whether this is the knowledge you need for your business. Given the partnership you are entering into, the personal click is also very important. Don't take any chances, but take enough time to get acquainted and discuss what you expect from each other. In addition, choose an investor with sufficient risk diversification. It may sound wonderful that someone wants to put all his money into your company, but you run the risk that your investor becomes too emotionally involved in your business. Especially in adversity, an informal investor can react unpredictably if too much depends on that one big investment.
Where do you find these investors?
Unfortunately, finding an informal investor is still not that easy. Unlike funding like crowdfunding, the possibilities of finding an investor online are actually nil. So you will need to have the right contacts. Informal investors usually let their own network know that they are looking for a company to invest in. Think of a bank, accountant or investment company. So the best start is to inquire with these types of organizations about the possibilities.
How can NOM help you?
We also have contacts with informal investors at NOM. Moreover, we regularly invest in a company together with an informal investor. We would be happy to advise you on the possibilities of informal investing.
Want to read more about how investors impact your business? Then download our white paper.
In this white paper you will learn:
- What you have to deal with when you start working with investors
- Differences and similarities between bank funding, subordinated loan and equity capital
- In what ways NOM as an investor can help you
Please note that this whitepaper is only available in Dutch at the moment. We are in the process of translating this whitepaper.