As the star of the investing reality hit series Shark Tank, Kevin O'Leary claims, "I'm a very simple man... All I wanna do is Make Money." Investors think along the same lines when making the decision to finance your small business. Learning how to pitch millionaires can be a daunting task, pushing many small businesses to turn to crowdfunding and other forms of financing.
Be prepared for your company breakthrough and increase your chances of being noticed by a potential angel investor. Follow these recent trends in small business investment and break away from the traditional norm.
Peer-to-Peer Lending on the Rise
One of the fastest-growing investing strategies that has come into its own this year is peer-to-peer lending (also known as P2P or social lending). This option allows for individuals to take personal loans from other individuals willing to invest. The borrowing and lending is accomplished without having to go through a traditional financial intermediary. Over the past year there has been a 195% increase in companies utilizing peer-to-peer lending, creating well over $2 billion in loans.
In order to minimize the risk for investors of borrowers defaulting on their loans, much P2P lending occurs via lending platforms. In the U.S., the two largest options are Lending Club and Prosper, both of which are based in San Francisco. Lending Club provides an easy way for small businesses to apply for loans. Investors open an account to start building their portfolio, and the more loans they give out, the faster they will start to earn their money back. The other option is Prosper, where you can easily choose to invest or borrow based on the current interest rates.
Without banks or credit lenders to interfere, P2P lending is more appealing to both sides. The investors are able to grow their money much quicker than normal and the interest rates for borrowers are typically lower than bank options.
More Startups Mean Less Risk
The amount of startups per year is increasing quickly. Founder of the Yahoo! Store, Paul Graham, published an essay on startup investing trends in June 2013. His predictions and studies indicate that the two main forces triggering change in startup funding are A) it is becoming cheaper to start, and B) startups are becoming the norm.
Founders of companies are now able to have the upper hand in their companies because the investors are holding less equity with less money invested. Since investors have less control of the companies, it is easier for startups to move precisely in the direction they want to and evolve in the vision of the team.
Angel Activity Increasing
Another emerging trend in 2014 is the amount of angels looking to invest in startups. Angel investors are planning to be more active in the coming New Year. A new study from Business News Daily, estimates that 50 percent of angel investors will increase the number of investments this year. What has caused this increase?
The economy's return is influencing the decisions of investors to reopen their wallets. With small business funding becoming more affordable, angel investors are able to reach out and help build many different startups at a time. This means more opportunity for the growing small business leaders.
Specific Industries Booming
Even though the growth of angel investors is on the rise, the angels are not investing in just anything. It is essential that you pick the right industry to be in at the right time. Businesses that are increasingly standing out to investors are in the health care, mobile and telecom, energy, and internet industries. On the opposite hand, the least invested areas include retail and industrial startups.
It is inevitable that the population of startups will only continue to grow in the coming years. How are you going to keep up and differentiate yourself from the others? Bringing something unique and worthy will help catch the attention of your potential investor. Don't be afraid to take chances to make the startup succeed.
Author Bio: Harper Kelly is a graduate of University of South Florida. She is a technology guru with a passion for writing. When she isn't researching new business trends you can also find her writing for homeinsurance.com, running the trails and training for her next half marathon.
Image via Flickr by Wonderwebby