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Archive for September, 2011

They are otherwise called angel investors, and in these trying times, they could just be the breath of fresh air that your struggling business needs to get back on track. Who are silent business investors, and what role do they play in the success—or failure—of a business?

Silent business investors are people who infuse capital into a business, usually a startup, but who prefer to leave the management of day-to-day affairs to other people. They typically decide to put their money into the venture when their business acumen tells them it has promise. They invest capital, then sit back to watch their money grow, or share in the loss if the venture fails.

It has been said that the primary role of silent business investors in a business venture is to infuse capital, especially to startup companies. While a successful business starts with a great idea, it definitely requires more than that to set up the business. For the most part, you will need enough capital to establish your business and get it working, and to sustain it until such time that it breaks even, and then start earning profits. To get enough funding, most startups turn to silent business investors, especially when the money they’ve pooled from contributions of family and friends is not enough to get the business off the ground.Some silent business investors do not provide the actual capital to start the business, but offer their own property as collaterals instead so the startup owners can secure a grant or loan. Others act as sureties, guarantors or co-makers for startup owners. Their good credit standing facilitates loans and grants in favor of the owners that they would not have been able to secure on their own.

Once a silent investor decides to put his money into a business venture, he necessarily becomes interested in the success of the venture. Because of this, he opens his network for the startup company to access and explore. Investors’ network of connections often proved to be a rich source of business opportunities for startups.

As we have said, in these tough times, silent business investors could just be the break that your business needs. But before you sign on the dotted line with a silent investor, make sure you do your homework.

First, you have to level any potential investor’s expectations. Sit down with anyone interested and explain everything in detail, including the risks. Don’t be afraid of turning them off. Chances are, they know that every business venture is faced with risks, and yours isn’t an exception.

Lastly, when you’ve agreed on the investment terms, make sure you get down all the items in black and white. Better yet, consult a lawyer when drafting the contract so you’re that all the details are clear and settled, and that your agreement is enforceable in the courts, in case your relationship turns from sweet to sour. It is no exception if you’re dealing with family or long-time friends. Business has a way of turning best friends into the worst enemies, so make sure you protect your interest with a formal contract.