Many small businesses will require some extra funding at crucial moments in their development. If you are looking to grow your business quickly, access to funding and investors may be crucial to your success.
Investors are elusive by nature. They often do not want to be bombarded by unsolicited requests for money. As a result, finding the right investor for your business can be a challenging process. In this article, we look at how to simplify that process.
Ask family and friends
Yes, it’s obvious but start with the people you know. Asking family and friends is a good way to start because their money will often be the most forthcoming, especially if you have no traction in the business.
Be sure to establish clear terms of the investment from the beginning and preferably document it. You really don’t want to fall out with your family and friends should your venture go belly up.
Be sure to present your idea as you would to an investor previously unknown to you. Always give them a preview of your company plan and a timeline for when they may expect to earn a profit. Also, inform them about the hazards if they are new to investing.
Small business grants
Grants are a good option since they do not need to be paid back and you often will not be giving away equity in your business. There are many state, federal and charitable awards available for small businesses.
Each qualifying requirement is different. Some are designed especially for business owners or small enterprises. In some circumstances, you also receive resources and mentorship in addition to the cash.
Be aware that if you are successful you will often need to report to the grant funder regularly to show how the grant is being spent. Grants are sometimes given in tranches rather than lump sums, so be sure to include that in your business plan if that is the case.
Ok, not everyone has wealthy family and friends or access to grants, so the next option on the list is angel investors. Angel investors are high-net-worth individuals that are often entrepreneurs themselves or have worked in the financial services industry. They are often looking for high-growth early-stage businesses to invest in.
Angel investors can be found via many avenues, the most common being social media. You can locate investors via social media, Twitter for example or investor platforms such as Angelist or investor connector platforms
Before you reach out to investors be sure to have your website and pitch deck ready to go. You never know, they may just agree to take a look and you don’t want to be caught out and disappear for months to prepare the information they will need to take matters further.
Be sure to keep in mind that in the early stages, an angel investor may want quite a large percentage of your business for a relatively small amount of investment. You should think carefully about the percentage you are willing to give away.
Be sure to ask for a realistic investment amount relative to the percentage you are willing to give away. For example, if you are asking an investor to invest $200,000 for 1% of your business, can you back up the suggested $20,000,000 valuation?
Crowdfunding sites are platforms that aim to connect small investors with high-growth start-ups. If your campaign were to succeed you could end up with say a hundred investors, each of which could have invested $1000, giving you your desired total of $100,000.
The big advantage of crowdfunding is that money can be raised very quickly if you have an idea that catches the imagination of the masses. If your business is more niche it may struggle to attract sufficient numbers of small investors. As always, a pitch deck will be required and more than likely some kind of pitch video too.
Bear in mind that crowdfunding is often target and time-limited so you will need to reach your investment target within a set period. Otherwise, you will not get any promised funds from your pool of investors.
Loans for small businesses
Often forgotten but a bank loan is an easy way to get some investment capital into your business. Of course, you will have to pay this back and will come with the disadvantage of regular payments.
You will need to be certain that your business can generate the cash to meet these payments, so if your business is not cash-generating it’s unlikely you will qualify for such funds.
Founders with new businesses will often be required to personally guarantee loans so should the business go belly up the founders will be personally liable for pay back. You’ll most likely need to show that you have good personal credit as well as good business credit to be approved.
Venture Capital firms
Venture capital firms look to invest in high-growth companies. Think of venture capitalists as angel investors on steroids. They will have access to larger amounts of capital and invest on behalf of pools of high-net-worth individuals or pension funds.
Venture capital firms are looking for extremely high growth opportunities, so if your business is not offering a 10x or more exit, it probably will not be of interest. Many venture capital firms will only look at companies with significant traction, though some specialise in early-stage and seed funding, so all is not lost.
Bear in mind that venture capital funds will carry out significant due diligence on your business. They will usually want a seat on your board in addition to the shares in your company. This means you are usually giving away much more control with VCs.
Also, VCs will be looking to sell the business or aim for an initial public offering (IPO) as part of their exit strategy. So be sure that your goals align with this from the onset.
Finding investors for small businesses does not have to be an arduous task. If you have a good pitch deck you can avoid the leg work by using Investor Connector. Investor Connector allows you to blast your pitch deck to 800+ Investors worldwide. Investor connector covers both Angel Investors and VCs that invest in early-stage businesses.
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