| There are many risks involved when Early-Stage | | | | Early-stage businesses are better off going with an |
| companies begin seeking loans from a bank; | | | | investor governed by the SEC, because to the |
| however, in order to understand the risks involved, | | | | surprise of many Early-stage businesses, the web of |
| one must understand what a bank really is. A bank is | | | | requirements attached to loans guaranteed by the |
| defined as a financial institution that accepts deposits | | | | Federal Government quickly become a hassle. In fact, |
| and channels the money into lending activities. The | | | | many Early-Stage companies can't even qualify for |
| Federal Reserve regulates institutional banks such as | | | | loans due to an unanticipated shortfall of capital. |
| Bank of America, Wachovia, local banks etc. Due to | | | | When a young company seeks traditional commercial |
| these regulations, banks assure fair lending practices, | | | | loans early on, then important revenues and profit |
| protection of assets for those who have deposited | | | | margins are used to service the loan instead of |
| money with them, and rates that can be charged to | | | | fueling the growth of the company. Therefore, it's |
| a borrower. Most people believe that debt financing | | | | very important for Early-Stage companies to funnel |
| only comes from banks like this, or institutional | | | | all of that capital towards the growth of the business |
| lenders, and that equity financing comes from private | | | | instead. If this is not done, then the consequences |
| or institutional investors. With Angel Investing, | | | | impact negatively on the company who is trying to |
| however, there are many ways to participate. | | | | grow and reach new milestones in its trek to attract |
| Private investors can provide capital in a debt vehicle. | | | | private equity investments. Angel Investors can |
| This allows private investors to play the role of a | | | | expect returns sooner through the form of debt |
| bank, but without the fiduciary restrictions of | | | | than by making straight equity acquisitions. Private |
| operating under Federal Reserve Regulations. These | | | | investment in the form of debt can earn a return of |
| individuals are labeled as investment bankers or | | | | 10 to 40 percent, which works out incredibly well for |
| dealers/brokers and are governed by the Security | | | | the entrepreneur and the private investor. |
| Exchange Commission (SEC). In most cases, | | | | |