How to find investors for your business
One of the most important aspects of running your business is finding financing. Between venture capital, traditional bank loans, and online crowdsourcing, there are now more financing options than ever before, but choosing the right kind of investor is essential.
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Benefits of commercial investors
The biggest benefit of finding a business investor may be obvious: they give you money to run your business.
Businesses need capital to grow, and working with business investors means you don’t have to grow the old-fashioned way – building your business slowly, brick by brick. Instead, you get an injection of cash and your business can grow quickly.
This is particularly noticeable with some Silicon Valley startups. Many leading tech companies needed huge sums of money quickly to scale their offerings and meet immediate demand.
However, finding financing is not as easy as convincing investors to give you large sums of money. Seeking to invest means trading something for access to finance. With venture capitalists and some angel investors, this can mean equity in your business, which in some cases could mean they have decision-making power over major business issues. With banks, you borrow money, so you pay a premium, or an interest rate, on the amount of money the bank lends you. This also has conditions, as many banks want to know how you plan to use your loan before they issue it. With online crowdfunding platforms, you can trade internal access or even equity for funding. [Read related article: Private Equity vs. Venture Capital: What’s the Difference?]
Working with investors is a great way to take your business to the next level, but it’s a trade-off no matter who provides the money. When looking for financing, you need to weigh your options and consider what to give up to get the financing you need. It doesn’t have to be a ruthless approach; it’s more of an important distinction to understand in order to approach financing with a successful mindset.
How to find a business investor
Finding investors can be one of the biggest challenges of starting or running a business. In general, it’s best to start small and move on to bigger options later – in terms of who you seek funding from as well as where you seek funding from.
As a small business or startup, look at your local community first. Cities and small towns are constantly developing business initiatives to get businesses to grow locally. If the nearest city doesn’t support the industry you’re heading into, spread out your search a bit at a time until you find one that does. Depending on your type of business, you may need to go where the money is.
Once you have a business concept, product or service, and plan, you are ready to start looking for financing. Here are five ideas to help you find a business investor:
- Work with your friends and family. Start by trying to find funding from friends and family. This may be the best option for you to start your business without proving yourself to an outside investor.
- Work with a local bank. Depending on how quickly you want to scale your operations, apply for a loan with your local bank can be a great way to build relationships with the community and find good financing options.
- Look for angel investors. If you’ve exhausted the previous options for finding funding, look outside of your community for angel investors and other private investors in your industry. Find areas of the country where your industry is flourishing and contact business leaders in those areas.
- Work with venture capitalists. This is usually the last stage in the growth of new business financing, but it is not a necessity for all businesses. If you run a stable and successful small business in your community, you probably don’t need to apply for funding from a venture capitalist. However, if you have a successful business idea that would benefit from extremely fast scale-up and high amounts of capital, then working with venture capitalists is a good option to pursue.
6 types of commercial investors
It’s best to move from small sources of funding to large ones as your business grows. This order, although it is not fixed, is a good general objective.
- Friends and family: The first place to look for funding is with your friends and family. Especially if you are a new or emerging business, introducing your friends and family can be a great way to get your business off the ground.
- Crowdfunding: Just like friends and family, crowdsourcing is a good source of early funding. It is important to determine if there is demand for your product or service before posting it on a crowdfunding platform. Funding from these platforms, combined with money from family and friends, can be a great way to launch your product or service. [Read related article: Equity Crowdfunding: A Primer]
- Classic bank credit: Once your business is established, with an operational history and support, you can begin to look to banks for a traditional loan. Banks need complete financial documentation and information before issuing loans, so have it all handy. If you are looking to build a strong local business, bank loans can be a great way to take your business from a fledgling operation to a full-fledged one.
- Angel investors: Much like researching bank loans, reaching out to angel investors is a good early funding step that can take your business from a small business to a larger one. Search locally to start, then move outward until you find private angel investors.
- Venture capitalist: Once you have some serious support, pitching to venture capitalists can be a great way to raise large sums of money to grow your business. Pitching with angel investors can be a good practice when it comes to pitching with venture capital firms.
- Accelerators: Accelerators are a great way to grow your startup. Some offer funding options, but most connect you with seasoned startup veterans who can give you advice on finding funding, developing your products, and building your organization. Accelerators aren’t usually a primary source of funding, but it’s important to know how they can benefit your startup.
How to attract an investor
It’s easy to get a general idea of how to find financing, but attracting the right investors and honing your business’ sales pitch can be extremely difficult.
Before you get started, be aware that any investor you work with should be viewed not only as a funder, but as a business partner, so it’s best to work with like-minded people. Especially when equity is on the table, investors with a sufficiently large stake in your business will ensure that their voice is valued. These types of partnerships can be beneficial, but also very damaging if they are forged on bad values. When thinking about how to attract investors, keep these main steps in mind.
1. Develop your business mission.
As part of your business plan and the overall growth of your business, you need a business mission to build. Investors want to know your “why” – why you think the world needs your product or service. You should be able to communicate the problem your business is solving in one or two sentences. If your mission and goals are too complicated, you will lose investors and customers. You need a simple and clear explanation of the value of your business to be successful.
2. Bring your brand’s voice to life.
One of your most important jobs as a small business owner is to develop your brand and your business voice, which is the most open aspect of your business. Investors look for brand value, especially when it comes to social media and being in your local community. By pairing a strong corporate mission with a distinct and well-developed brand voice, you are halfway to finding the right investors.
3. Take as many meetings as possible with potential investors.
Finding the right investors means meeting as many potential investors as possible. Accept any opportunity to speak. This will not only help you refine your business’ sales pitch, but also read potential investors and decide who would make the best partners. Finding funding is often a process of rejection and judgment. By making as many appointments as possible, you will increase your chances of finding financing.
Don’t be discouraged when potential investors decide not to fund your business. It’s part of the process. Do your best to focus on the next opportunity. When the going gets tough, fall back on your business mission to remind yourself of what you’re trying to accomplish. Remember that even if only one investor agrees to finance your business out of the 50 you meet, it is still a success.