Are you wondering what alternative options you have in 2023 to finance your business? This article will tell you all about the venture capital and angel investors available in the market and how they can help you obtain the funding you need.
Why there is less Venture Capital this year
The 2021 Covid-19 induced recession has impacted venture capital investments in 2022 and 2023. With corporations tightening their purses, their need for such innovative start-ups has reduced, giving rise to the decreased availability of venture capital. This economic downturn has prompted many companies to look towards alternatives such as private equity and angel investors who can provide them with opportunities for reinvestment or exit strategies.
Accelerated due to the pandemic, it is believed that venture capitalists are now being more selective about investing in true innovation rather than stability and long-term scale. Start-ups now wish to find alternative ways of financing, especially if they plan to make it through the seed round or future series A rounds of funding.
The issue becomes one of risk: How can investors be sure that a start-up will succeed despite current market pressures? This leads many investors into a wait-and-see approach for the seed round that relies heavily on articulating a great deal of vision and tangible proof points later to obtain funding.
With the uncertainty of 2023 looming in front of us, we must pay attention as startups search for alternative means of finance while also waiting out this period before they can thrive again with Venture Capitalists more willing to invest. With many stocks suffering from market turbulence, saying which stocks will soar or fail is difficult, so Angel Investors have stepped up and provided late-stage financing during these turbulent times. As well as helping struggling start-ups acquire venture capitalists’ late-stage investments. The emergence of new technology firms increases competition, making it easy for investors seeking an exit strategy in 2020 and beyond due to their short-term projects having achieved success faster than expected, making supplying needed funds less necessary.
These changes demonstrate why there is less available Venture Capital this year than compared to pre covid 19 years, with more smart money focused on alternative finance investments in 2023.
Angel Investors are still there, just investing less.
Venture capital, angel investors and alternative financing are terms often used interchangeably when discussing early-stage funding. While distinct differences distinguish all three, the same general principles apply to any business seeking investment. Angel investing is a type of private equity investment where investors “fund” early businesses with their capital in hopes of reaping significant returns on dividends years later.
As venture capital firms have increasingly become the dominant source of early-stage funding in recent years, angel investors have increasingly become less active. In 2023, many angel investors will likely continue investing less than in prior years as venture capital firms increase their dominance. That being said, those select few angel investors who still actively invest will remain important players within the greater private equity sector and should not be discounted entirely.
What this means is that while angel investing will still exist as an option in 2023, entrepreneurs looking for alternative sources of finance have more opportunities to explore than ever before, including:
- Debt-financed crowdfunding campaigns
- Peer-to-peer lending platforms (P2P)
- Mezzanine finance
- Impact investing products from socially conscious fundraising firms and impact investors
Each has its own strengths and weaknesses that are important to consider before making an investment decision for your business. Understanding these various forms of financing can prove beneficial when deciding which approach is suitable for your needs by 2023 and beyond, so make sure you do your research ahead of time.
Alternative Investing may be the solution.
The new year has brought changes in how investments are made, from venture capital and angel investors to the emergence of alternative financing sources. In 2023, more and more companies have adopted crowdfunding and other alternative finance methods to support their projects.
Alternate investment sources offer advantages that traditional ones do not, such as increased access to retail investors who can contribute capital but need to be considered qualified investors under existing laws. Online portals create greater transparency between companies and investors and offer faster access to the funds needed to realize the full potential of a project or business idea. Moreover, start-up owners have greater control over the investments they receive through these platforms compared with having a limited say over venture capital options.
Crowdfunding, in particular, has become a widely used source of alternate financing due to its low-cost option and wide reach to the 97% of the population who have been unable to invest before and who may be potential investors. As such, small businesses can receive the necessary funding from anyone who believes in their product or service idea and is willing to promote it for success actively.
Alternative financing has revolutionized how investments are made by giving greater power to entrepreneurs looking for alternate solutions for funding their business ideas in an unconventional way, as well as opening up opportunities for everyday people that were previously only available to sophisticated venture capital firms. Alternative investing will likely remain an attractive option for entrepreneurs in 2023 as well, offering increased access to funds this year than ever before. If this article has piqued your interest, join our sister platform The Crowdfunding Hub to find out more.