Let’s assume you want to start a small business or grow an existing one. You need an injection of money to take it to the next level. You call potential investors, but how do you persuade them to invest in you and your business?
Here’s another scenario: A friend asks you to invest in a privately run wind energy company that’s been operating for five years. You’ve got the cash, but how do you decide if this investment is right for you?
Raising capital, also known as OPM—Other People’s Money, is essential in the world of investing. However, it can be one of the most intimidating parts of starting as an investor.
The Power of Using Other People’s Money (OPM)
OPM means using capital that belongs to other people to invest in and control more significant assets. The benefits are numerous, but a major advantage is that you can boost your cash flow faster, more reliably, and more effectively than if you used your own money. While it may seem counterintuitive, leveraging money that isn’t yours is a key to investing success.
OPM provides you with leverage as an investor. If you are a small-cap investor, you can leverage the strength of larger capital to make investments that have the potential to uplift larger ones. Leverage is the reason some people become wealthy while others do not. Less than 5% of Americans know how to use the power of leverage, which is why less than 5% have most of the wealth.
Consider an investor with $10,000. She can invest this in the stock market and control $10,000 worth of assets. This is ‘leverage-free’ investing. But if she uses the $10,000 as a 10% down payment on a property and borrows the rest (OPM), she now controls a $100,000 asset. This property can generate a much larger cash flow than a $10,000 asset. OPM allowed her to invest in a larger asset.
Where Can You Get Other People’s Money (OPM)?
Finding sources of Other People’s Money (OPM) is crucial for leveraging investment opportunities. Here are some common ways to access OPM:
1] Angel Investors
Let’s assume you’re developing an innovative app that you believe could revolutionize the way people manage their finances. You have the skills and the vision, but what you’re missing is the capital to get it off the ground. This is where angel investors come in.
Angel investors are typically successful business owners or high-net-worth individuals who provide financial backing for small startups or entrepreneurs. Unlike traditional lenders, they are often more willing to take a risk on new ventures because they are motivated by both financial returns and a desire to help budding entrepreneurs succeed.
2] Venture Capitalists (VCs)
Now, let’s say your app is a hit, and you’re looking to expand rapidly. You need more substantial funding, along with strategic guidance. This is where venture capitalists come into play.
Venture capitalists are professional investors who manage pooled funds from various sources to invest in high-growth startups. They are interested in businesses that have the potential to scale quickly and generate significant returns.
3] Traditional Financing
Traditional financing is like borrowing from a reliable friend, someone like a bank or credit union. They’ve been around for a while and have a set of rules to follow. You might need good credit and a solid plan to convince them to lend you money, but they can offer good rates and helpful advice. There can be paperwork involved, but it’s a safe and familiar route.
Another option is like asking a group of friends to chip in. With stocks, you sell bits of ownership in your company to investors, and with bonds, you borrow money from a bunch of people and promise to pay them back with interest. This can be great for raising a lot of money, but it also means sharing some control.
4] Non-traditional Financing
This is finding creative ways to get the money you need. If you have a great business idea banks might say no because you’re just starting out. Non-traditional financing could be like getting funding from an angel investor or a wealthy person who sees your potential and is willing to give you money in exchange for a share of your company. It’s a gamble for them, but if your business takes off, it could be a big win for both of you.
Another option is crowdfunding. This is where you use online platforms to pitch your idea to a large group of people. If enough people believe in you, they can all chip in a little bit to get you going. It’s a great way to raise money from the ground up, but you need to be a good storyteller to convince people to invest.
Conclusion
With OPM, you can find investors who believe in you and your vision. The key is to ditch the “scarcity mindset” and embrace abundance. There’s plenty of money out there, it’s just about finding the right opportunities to make it work for you.
Ready to explore investment opportunities using OPM? Check out our investment consulting services to learn how we can help you leverage other people’s money to achieve your financial goals.
