Why Are Investors Important?
Investors are crucial to a business for several reasons. Without investors, many businesses would fail, or never have the chance to get started in the first place. They're beneficial to both small and large companies in a number of different ways and we as a society depend on them because of this. Let's put it like this: If doing business was a car, investors are sometimes like the gas that gives a company it's boost in the beginning, or the oil that helps keep things running smoothly. There's all different types of investors, from private ones, to public ones, to investment firms. The type of investor and how they choose to invest their money is what can make or break a business. When investors pull their money or funding from a company, it can hurt that company or even destroy them. So they are important, not only in good ways but in bad ways as well. Most of the time investors are good for a company though, so here's some of the positive reasons as to how they're important.
Help Companies Get Started
In order for most businesses to become successful, they need seed money in the beginning to give their company or product the boost it needs in order to start marketing or growing. Let's say you have an idea for a small business, such as a donut shop, and you have all the money you'll need to buy equipment to make the donuts and rent the building that you'll work out of. You have everything you need to make the donuts for the customers, but you have no money to advertise your company in order to get customers there. This is where an investor can be extremely helpful, because they could invest some of their money into your company so that you can spend it on advertising to bring in customers. Once those customers show up and start buying things from you, you can spend some of the profits you make from them on even more advertisements. You'll be able to do everything you need to do on your own once you get that first set of customers rolling in, but having money in the beginning to advertise to them is important and necessary or else you'll never get your business off the ground. So you could, for example, take a loan from an investor in the beginning in order to market your company and advertise. In return, you agree to pay the investor more than what they invested, and this can be done in a number of different ways. Sometimes investors are paid back through a monthly payment schedule, while other times they may be paid out with a large sum or in the form of stocks.
Get Inventions Off the Ground
Inventors need investors as well, and in a similar manner. Let's pretend you just came up with a great idea for an invention and you want to patent it so nobody steals your idea. So you go and spend money on a patent and possibly some other legal fees in the process to make sure your idea is protected. But how are you going to market your invention or even create it without the proper money in the beginning? Protecting your concept is a great plan, but it means nothing if you can't get your idea to turn into a reality and get it out there so customers can buy it. So you might try to get funding for your invention by approaching private investors or investment firms and asking for some money for that purpose. If they believe in your invention, they might be willing to invest in it in return for a piece of your company's stock, or some other form of compensation.
Allow Companies to Grow Faster
Sometimes a company may be doing fine without investors for a while, but then they'll suddenly need some extra money to keep things running smoothly and to keep their company growing. For instance, imagine if there's a company that sells T-shirts that are related to movies, and imagine if there's a brand new movie that's about to be released which will be more popular than most movies in the past. Avatar, Titanic, Jurassic Park, The Dark Knight Rises, these types of movies stand out from others because of how popular they became as soon as they hit theaters. So let's this company wants to sell Avatar T-shirts and they have permission from the movie studio to do it. The only problem is that the movie may only be popular for a short amount of time until the next big movie hits theaters. So if they intend on selling T-shirts related to it, they're going to have to do it quickly before the trend or hype dies down and while people are still interested in Avatar. Maybe the company doesn't have enough funding to make that many T-shirts, since the film is much more popular than past films that they've created T-shirts for. This is when an investor is important, because they can help the company out by giving them money to create millions of T-shirts quickly while the movie is still popular and the customers are still out there. The timing is very important in this situation because if they don't find an investor quickly, they may miss out on an opportunity to make a lot of money, while the company's competitors take advantage of the opportunity and grow larger than them and eventually overpower them and put them out of business.
Improve Business Reputation
Another major benefit that investors can provide is by adding credibility or support to companies when they're not well-known or when they have a bad reputation. Warren Buffett, for example, is a well-known and respected investor in different stocks and companies. He became a billionaire by investing in different companies, so when people see him investing in a company, it can often make the company look good. Many people figure that if Buffett is going to invest in something, he must have done his research and that company probably has a high chance of becoming very profitable. This can cause other investors to jump on board as well and put their money into that stock or company as well. Additionally, consumers may be more willing to buy a product from a store or online if they see that it's backed by a company they trust or view as dependable. Nobody wants to be scammed or purchase a product that will break easily or not live up to it's promise, so when a big name investor or a lot of investors put their money into something, it's almost like they are voting in favor of a company and saying they are trustworthy or that one of their products is a smart purchase. In reality, sometimes they may just be investing in a company based on how much profits they think there will be for a product, rather than the actual quality of the product itself. But either way, it's good publicity for the business if those who are investing in them are famous and respected.
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