Factoring versus Angel Investment
Table of contents
- Factoring versus Angel Investment
- Comparing the use of invoice factoring and venture capital funding as financial solutions.
- What is Venture Capital?
- What is Invoice Factoring?
- When is Venture Capital Considered?
- The Drawbacks of Venture Capital or Angel Investors
- The Benefits of Invoice Factoring vs Venture Capital
- Industries That Often Seek Venture Capital
- How Does Invoice Factoring Help Startups?
- Why Choose Invoice Factoring?
Comparing the use of invoice factoring and venture capital funding as financial solutions.
Invoice factoring and venture capital are both financial tools startups may look towards to increase cash flow. Startups need cash and need it now – according to a study by CB Insights, running out of cash is one of the top reasons that startups fail.
You can read our article on start-up factoring for SAAS companies.
What do these two financial tools mean? What’s the difference between the two? And does one provide more benefits than the other?
What is Venture Capital?
Venture capital is a type of private equity financing. Investors called ‘venture capitalists’ provide financial support to new and expanding businesses that are in need of cash flow. In return, the company will provide stakes in ownership to the investor.
Venture capital often comes from angel inventors, private investors, start-up funds, and early-stage investment banks. Besides family and friends, most early-stage investments come from sophisticated accredited investors since the chance of failure is very high.
Angel investing and venture capital can fund companies that are pre-revenue or B2C. While accounts receivable factoring can only fund against a company’s open invoices that are B2B or B2G.
Venture capital firms are looking for high growth potential and an eventual initial public offering or IPO for their exit strategy.
What is Invoice Factoring?
Invoice factoring is a funding solution for unpaid invoices. When met with 30-90 payment terms, Bankers Factoring will keep cash flowing by purchasing your unpaid invoices and providing you with an immediate and safe advance on your invoices.
Please read startup funding with factor finance.
We will then collect the payment from the customers ourselves, taking the burden out of your hands, all while providing credit risk and bad debt protection.
A factoring company can handle startup companies, but it is based on its expectations its customers will pay. Positively, it is also a short-term type of financing.
See our invoice factoring FAQ and get your questions answered.
When is Venture Capital Considered?
The most common candidate for venture capital is a high-potential startup business navigating their early stages. They will be seeking out funding to grow their business, especially when traditional bank loans are not available.
However, venture capital often comes with drawbacks that may cause a business to consider other alternatives.
The Drawbacks of Venture Capital or Angel Investors
Venture capital can provide startups with cash flow benefits, but there are multiple potential negatives that can come with the service. Loss of control, steep costs and fees, impairing equity, and no risk protection are all negatives to be considered.
Angel Investor and venture capital monies can be difficult to acquire. On the other hand, factoring is available if you have solid accounts receivable.
The Benefits of Invoice Factoring vs Venture Capital
- Quick access to cash
Securing funds from venture capital often can take many months to be approved. This action of making efforts to appeal repeatedly, and once approved, it can take even longer to receive the funding. Even then, only a small percentage of startups are able to receive venture capital funding – it is highly competitive. On the contrary, invoice factoring is a simple and quick process. After approval with Bankers Factoring, we provide immediate and safe same-day funding.
Learn more about the benefits of working with Bankers Factoring.
- No equity dilution
Venture capital requires startups to provide equity, causing businesses to share an amount of ownership in their business, decreasing the decision-making power of the founders. With invoice factoring, a factoring company will not take on any equity or ownership in any way. They will allow for greater freedom with your business while still securing safe and reliable funds.
- Lower costs and fees
The costs and fees associated with venture capital are often high, and investors many times expect a high rate of return. This can be costly and prove to be difficult for a new business to keep up with. Invoice factoring rates are typically much lower, and Bankers Factoring provides low rates with zero hidden fees.
Learn more about the benefits of invoice factoring.
Industries That Often Seek Venture Capital
Industries that often seek venture capital when starting their business many times include:
- Renewable Energy
- Food and Beverage
Every one of these industries is also factorable and can receive the amazing benefits of increased cash flow from invoice factoring.
How Does Invoice Factoring Help Startups?
Many of the businesses that may seek venture capital are startups. They are looking to increase their cash flow and have the freedom to grow their company without financial issues holding them back.
When looking to invoice factoring as a solution instead, there are many reasons that startups can immensely benefit from invoice factoring’s services.
Ways Invoice Factoring Can Help Startups Succeed.
- Increased funding for growth
Unpaid invoices lock up cash flow, and when a business is just starting-up, unrestricted access to cash flow is a necessary thing. In the early stages of business, now is the most important time there could ever be for working capital and freely flowing cash. Invoice factoring solves the problem of waiting for unpaid invoices and creates improved cash flow with a simple and quick process.
- Often unable to access bank loans
With little or no credit history, startups often run into trouble when trying to receive funding through bank loans, and it can be difficult and nearly impossible to be approved. However, invoice factoring does not require a strong credit score. The creditworthiness of the customers will be examined instead, providing greater accessibility to funding.
Learn more about invoice factoring vs bank loans.
- Reducing admin work
The employees of many startups and new businesses can often be stretched thin, and having to oversee and collect payments on outstanding invoices can often be a difficult burden. Invoice factoring will take care of these tasks, freeing up administrative employees to redirect focus to other areas that need attention, allowing for greater growth.
- Taking on credit risk and bad debt protection
Non-payment isn’t good for anybody, but when it comes to small businesses, non-payment can prove to be detrimental when funds are scarce. Luckily, Bankers Factoring is a special type of factoring company called non-recourse, meaning that in the event a customer cannot pay their invoice for reasons of financial distress, we will absorb this loss, taking on the credit risk and protecting your company from bad debt.
Learn more about non-recourse factoring.
Why Choose Invoice Factoring?
When met with the issue of unpaid invoices, and struggles with making payroll and making financial obligations loom, let Bankers Factoring take your financial problems and turn them around, allowing financial pain to become an opportunity for financial growth.
With over two decades’ worth of experience, the owner-employees of Bankers Factoring are excited to welcome you into our family and support you in your entrepreneurial journey.
Turned down for a venture capital investment but have solid open invoices? Factoring from Bankers is the fast and safe way to turn open receivables into same-day working capital.