Your investors might be people you know such as friends, relatives, and colleagues. Or they could be venture capitalists, investors who specialize in early-stage startup companies who are high-risk but have high potential.
Friends and Family
When borrowing from friends and family, it’s still important to agree in writing on the terms of the loan. This helps you and your investor decide how the money can be repaid but more importantly, it affects whether or not the IRS taxes the money you received. (For example, if you do not repay the money you borrowed, the IRS may classify the loan as a gift and impose a gift tax.)
Venture capital may come from wealthy individuals (called angel investors) or venture capital firms who have rules about how they invest. These kinds of investors contribute to decisions on how to run the company and often mentor the business founder or founders.
Crowdfunding is a method of funding a project or business by raising small amounts of money from a large number of people. Each crowdfunding campaign sets a goal amount of money and a fixed amount of time in which to raise it. By sharing your campaign, you not only raise money, you also create awareness of your new business or product.
There are dozens of websites that allow you to create and share a crowdfunding campaign - a quick internet search will lead you to them. Pay close attention to fees and campaign rules to make sure you maximize your fundraising.
Note: Crowdfunding can also refer to the funding of a company by selling small amounts of equity to many investors.