Businesses can be very rewarding, but they’re also very risky, especially if you don’t have a lot of experience running them. According to experts, two of the most common reasons businesses fail includes a lack of funding and no proper business plan. Although you can try to learn better from a devastating loss or scrape together the money to continue running your business, there are other people who can help you in this matter.
Business partners and investors are among the most coveted assets of many companies. The former provides resources, contacts and experience while the former often gives financial boons and new perspectives. But what are the different kinds of partners and investors out there?
Learn about four of the most common types of business partners and investors.
An active partner is someone who you invite to your business to have a dynamic impact on your company. Rather than simply hold shares if your business and earn a cut of the profits, an active partner has actual power within your company. This type of power depends on what kind of arrangement you come up with.
Some active partners will directly tell you what positions they want, usually these are chief operations officer or chief financial officer. Or they may just want a vote on the board of directors and a largely ceremonial title. Active partners are great if you want to bring someone with experience, drive and ambition onboard to shake things up. They usually come with new ideas, contacts in the field and potential client lists.
However, you should be wary of partners who could try to edge you out of your own enterprise. This is why such partnerships are usually overseen by a commercial law attorney who helps delineate the powers and responsibilities of the partner.
On the opposite side of the scale are the silent partners. According to recent research, over 50 percent of households in the United States have a form of investment. Since a lot of people don’t know how to run a business or make the decisions necessary to run an enterprise, a lot of these stockholders don’t actually have any power in the companies they are investing in.
A silent partner may have a variety of reasons they don’t want to have a more active role in the business they’re putting their money in. They could be very busy with other matters. Or they could be contented in reaping the rewards of their investment. This doesn’t mean a silent partner has no power in the company. If they own a lot of stock, they can still be part of the board of directors, have voting powers and so on. It just means they prefer not to be involved in the minutiae of the business.
Silent partners are ideal for when you need someone’s resources, but you don’t have open positions or you don’t want someone steering the company in a different direction.
There is some overlap between investors and business partners.
For example, some investors inevitably become business partners because they want to ensure there is a high return on their money.
An angel investor is differentiated from other types of investors because they so often give money because they believe in the person behind a business not just its profitability. Indeed, many angel investors have a personal connection to you. They could be friends, family or even former colleagues who are giving you their resources out of kinship.
Some angel investors give money to business owners who are part of their advocacy such as people of color or female entrepreneurs.
Although not quite the opposite of an angel investor, a venture capitalist often does not care about the personal dreams of someone. Instead, they’re looking for the next big thing.
A venture capitalist is defined as someone who wants to invest in a business that can potentially give very high yields. They tend to be serial entrepreneurs with a lot of resources they can use to fund small companies and get in on the ground floor.
Courting a venture capitalist is a very tricky affair. They usually only go for businesses that can rake in millions for them in the long run. So if you’re running a small business or a niche enterprise, you’ll have better luck looking for funding somewhere else.
Running a business alone can be difficult, but with the right partner, you can be surprised at how quickly your enterprise can grow. Learning about the types of partners and investors you encounter will no doubt help you make the right decisions.
