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I have a small pet shop that is presently a sole proprietorship. Would I have to incorporate to raise venture capital?
This is a great question – Company is a Sole Proprietorship, should you Incorporate to raise capital? Yes. Investors wont invest in a Sole Proprietorship for the simple reason that there is only one owner. The VC or Angel Investor cant buy any stock. However, you can still raise money by things like factoring, bank loans or venture leasing.
The main thing I wanted to explain is why would a small one store pet shop want to raise venture capital? You probably don’t. First thing I want to explain – cause I hear this So often is: Venture Capital is not a synonym for Money. Most early stage entrepreneurs hear the words Venture Capital and are not sure what that really means, except that they can 'give' you money. Most of these people who say they need to raise Venture Capital don’t need to, and wouldn’t want to if they know what it actually means.
Now, this might not be the exact scenario of the question above, but Im going to generalize and say that people who own small pet stores, or other small businesses and want additional capital are looking for anywhere from $25,000 to $100,000 to buy more product, expand into the store next to them, or to pay off bank loans and other debt.
If you say I need to raise venture capital, it means a number from $1M up (typically) and the VC is buying stock (ownership) in your company. The VC is looking for a LARGE multiple on his investment – typically 10X +. That means if he invests $1M in your corporation, he will eventually want you to Sell the company (or go public) earning him $10 million + in a few years. This means you want your small pet store to go head to head with some of the larger chains and have them eventually buy your company for many millions of dollars.
Now, I don’t want to dissuade people from raising money from VCs or Angel Investors. In fact, that’s my business at FundingPost. FundingPost maks introductions from Investors to Entrepreneurs every single day raising $250,000 to $10,000,000+. Almost every large corporation out there has raised money from outside investors at one point.
You just have to consider what you are raising the money for.
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