Access to adequate financing is critical in determining business success. Capital for a business is provided in two basic forms; equity and debt.

Equity represents an ownership stake in the company and shareholders generate a return on investment through dividend payments and appreciation in the firm's value.

Debt represents an obligation with scheduled repayments and lenders generate a return through interest earned. Equity holders assume a greater investment risk and therefore demand a higher rate of expected return than debt providers.

The type of capital available will be determined by the company's development, its growth prospects and management's ability to present a credible business model.

Angel financing often represents an excellent source of funding for early-stage, high risk ventures. Angel investors are typically wealthy individuals, acting alone or in groups, who are willing to invest before the business is established enough to secure bank or venture capital financing. Angels usually take an equity stake in the company and also offer expertise and advice, often through Board representation. Typical investments are US$25,000 - US$100,000 per individual or up to US$1 million for an angel group.

Venture capitalists typically provide much greater levels of funding, but their investment criteria and due diligence processes are more rigorous. Individual venture capital firms are often limited in the industry and geographical focus they consider. Since investment amounts are larger and venture capitalists aim to realize a return within three to five years, they are often act as second round equity providers once business model is established. Venture capitalists are heavily involved in the strategic planning and business development of companies and management must be prepared to forgo some autonomy.

Raising capital though bank loans, or other forms of debt, allows existing shareholders to retain equity and control. This option is not always feasible for an early-stage company since assets and cash flow may be insufficient to provide security or service debt. For amounts below US$100,000, a business owner may be able to obtain a loan based on personal credit or assets. Selling business receivables also represents a potential form of secured borrowing, where future payments from customers are used to guarantee repayment.

A business may eventually be able to access the wider capital markets though the issuance of publicly traded equity or debt securities.

Before a company is ready to raise capital, management should be able to

• concisely articulate the company's products or services and market opportunity;
• have a strong core team in place or identified;
• provide realistic financial projections substantiated with peer comparisons;
• identify the firm's competitive advantages;
• quantify the capital requirements of the firm and state how much ownership they are willing to give up.

All of these elements should be incorporated in a well-thought out business plan.

Entrepreneurs can identify potential capital providers through numerous sources including existing contacts, banking relationships, professional advisors and investor groups. The internet is also a useful tool in identifying angel financing groups and venture capital firms.