Securing funding for a new business can be a lengthy and frustrating process. While highly sought-after ventures may get financed within a matter of months, the average Australian business can wait up to a year and half before reaching and receiving their funding goals. To shorten wait time and high interest rates, entrepreneurs often first turn to savings, friends and family for funding, but since those sources are usually scarce, entrepreneurs must eventually look to outside help.
Unfortunately, the federal, state and territory governments in Australia don't offer grants to start a business, only to expand, develop and export. New businesses are then forced to turn to financial institutions or outside investors. However, much like the media has widely reported, funds for start-up and growing businesses are dwindling due to the tight conditions of credit markets in the country. Lenders aren't as quick to hand out loans and will ask for cash flow guarantees and collateral, stipulations that are hard for start-up companies to pull together and ensure.
That is why many new businesses turn to angel investors for initial funding. Since these wealthy, private investors are willing to take risks on budding entrepreneurs, investments tend to be small - covering operating costs and income for the first few years, plus leaving room for shortfall. Angels also provide added value to entrepreneurs by sharing their contacts and business expertise.
Once a company has proven growth, entrepreneurs can then seek venture capital - money often pooled by investment firms - to expand. These funds are usually set at higher amounts (up to the billions) in exchange for shares in the company. To exit the agreement, equity investors can resell, merge or take the company public with an initial public offering.