When do entrepreneurs require external capital? Describe the three primary sources of external capital.

 When entrepreneurs decide that an opportunity is worth exploiting, they often lack the capital (i.e., money) needed to exploit the opportunity. Although some entrepreneurs fund their operations with their own money or with credit cards, most entrepreneurs require at least some external money to fund operations. The three primary sources of external capital for entrepreneurs: angel investors, venture capitalists, and bank financing.
1. Angel investors are wealthy individuals who provide capital to new companies. Angel investors may include an entrepreneur's family and friends, but angel investors are also private individuals who did not know the entrepreneur prior to funding the opportunity. Angel investors have existed for centuries.
2. Venture capitalists are firms that raise money from investors and then use this money to make investments in new firms. Many prominent companies such as Intel and Microsoft received investments from venture capitalists in their early days. The companies then used these funds to help acquire the resources (i.e., employees, equipment, etc.) that eventually made them the companies they are today.
3. Bank financing occurs when an entrepreneur obtains financing from a financial institution in the form of a loan. It is important to note that unlike angel investors or venture capitalists, banks are not investors. Instead, banks make loans to entrepreneurs and in return expect repayment of the loans with interest. As such, banks are not concerned with the long-term potential for returns. Instead, these banks are more interested in ensuring that the entrepreneur's opportunity will survive long enough to ensure repayment. In other words, investors typically seek risk, but banks are more likely to minimize risk.