As a small business owner, you have invested your own money. And you stopped applying to Shark Tank (at least for now). So how do you raise that much money?
Small businesses need additional funding at a critical time in their development. Financing and raising money to scale are the main reasons small business owners are looking for investors.
Saving any money speeds up your business decisions by increasing your bank balance. But an investor can also bring other things, including fresh eyes and different business brains that focus on your business.
If this is your first time looking to invest, you've come to the right place. Once you start searching for "types of investors", you will be surprised by the details, in no particular order.
How to Find Investors for a Small Business
Here are our top 7 ways to find potential investors for your small business:
1. Family or friends
2. Small business loans
3. Small Business Assistance
4. Angel Investors
5. Venture capital business
6. Links to your work area
7. Crowdfunding platforms
1. Friends and family
After personal investment, the main source of startup capital is family and friends. It makes sense: you don't have to go through a difficult process when sometimes required and other investments. One of the advantages of investing instead of taking a loan is that you can get more money up front, and you don't have to pay it back in installments.
Like any other investor, your friends and family will see their money back if your business is profitable. So keep in mind that this is still a commercial enterprise. They have a stake in the business, but now they face some risks.
Depending on the level of investment, they may also have decision-making powers. Be sure to present your ideas as you would to an outside investor. Lay out your business plan and give them an idea of when they can expect to see a return on their investment. If they are new to investing, explain the risks involved.
There is a reduction in mixing personal and professional relationships. It's not just a financial risk. You should think about the consequences of a bad situation before you try to get money from friends and family. There are other ways to raise money. Your friends and family will never be replaced.
2. Small business loans
When you are looking for money, a small loan may be the best option. Your local bank is the obvious first port of call. You are more likely to do well if you are a strong business so they can see your history. Banks require detailed financial information before issuing a loan application. So make sure your documents are complete. The Small Business Administration, or SBA, is a US government agency designed to help small businesses.
Although the company does not make loans itself, it has a Lending Tool on its website to help companies find SBA-approved lenders. Some small business administration fees are also guaranteed, along with generous repayment terms and low interest rates.
The main disadvantage of a business loan is that you have to pay it back in installments, regardless of how your business is doing, and possibly with interest.
3. Small Business Assistance
A variety of state, federal, and nonprofit grants exist in the United States. All eligibility criteria are different. Some are targeted at entrepreneurs, startups, or small businesses. Others are open only to certain sectors or are designed to support specific groups of people (such as veterans). In some cases, you get resources and advice in addition to money.
You may not refund small business offers. It's amazing, isn't it? But you'll want to be specific in your application to ensure you meet all grant eligibility criteria. SBA grants are a good place to start looking. You can search for federal grants at Grants.gov and for state and federal grants at USGrants.org.
4. Angel Investors
Angel funds come from high net worth investment professionals. They invest their own money and often look for opportunities to invest in the start-up of a business. Typically, angel investors look for growth potential to get a good return on their investment.
If you get an angel investor on board, they can provide enough support that no other investors are needed. Which makes the distribution of equity more clear if you have many investors? These self-investors often start a passion project that they are associated with. But your business plan needs to be airy - you need to know your numbers.
Any angel investor may want to participate in the development of the business every day. Which means you get another professional working in your business? But it also means you have to be willing to give up some control.
To help you find the right angel investors for
your business, start here:
• Angel Capital Association: Lists angel investors by state
• Angel investment network: More than 300,000 potential investors in one place
• Pipeline Angels: Funding for women-owned businesses
5. Venture capital business
Funding comes from investors. Limited partners invest in these companies. Then, the financial institution itself invests in carefully selected small businesses. They expect equity and return for their investment and talking in your business. Investors are looking to invest equity in companies with high potential for rapid growth.
The main goal of venture capitalists is to make your business big enough to be bought by a large company or go public. It is important to remember this when you are looking to invest, because it may not match your business goals.
Going to a business finance company is a step up from other forms of investment. You don't need it until your business is established and ready to expand, perhaps into something more risky. If you have a game-changing plan and need funding to implement it, now is the time to find interested investors. But investors sometimes invest in startups, so don't rule them out.
Generally, the amount invested by venture capitalists is higher than that of angel investors. They can invest millions. But only if they expect a return on investment.
6. Links to your work area
Potential investors are everywhere. You just have to find them. Networking opportunities aren't just for new businesses. You can meet other entrepreneurs who are perfect investors for your business.
Other companies: You may
already know people in a similar field to yours. You can contact them to see if
they have any recommendations that might interest you in investing in your
business. Show up at industry trade shows with your ready-to-use investment
pitch. This research process can take a lot of your time, since it is unlikely
that you will find interested investors in one phone call. You can invite more
people or attend company events and network. But, if you keep digging, you may
be introduced to that person who is interested in your business plan or product
enough to invest in it.
School: Schools that offer certificates, degrees, or degrees in your field are also potential avenues to reach potential investors. In fact, often, experts teach the program and invite guests to talk about certain topics. Generally, these hosts are experts in their field. Perhaps you can see if the professor or someone from the department will contact these visitors on your behalf, to arrange an introduction.
7. Crowdfunding platforms
Crowdfunding sites are online platforms that help entrepreneurs make money. Individuals and businesses can start crowdfunding campaigns to attract more investors.
This is a new way to find entrepreneurs who provide initial funding to start your new business. People who are excited about a new product or service can offer money for seed money. Every social media campaign has a target amount that must be reached by a certain date. Otherwise, you will not receive any of the promised money.
A Rewards Based Funding Platform
This is where applicants are asked for a small amount of money, in exchange for some kind of reward from the beginning.
For example, Dave's Drones is a startup seeking funding for a new product, a 4K drone with artificial intelligence technology. Anyone who pledges $600 will get a free drone when the product launches in 18 months (at a retail price of $900). Those who pledge $750 will receive the drone, two extra batteries, and an extended warranty. This is a win-win, because the company's fee to ship the product to each investor when it's out will be under $600. The investor, assuming that the business is successful, gains a lot. And you won't lose your business. Indiegogo and Kickstarter are two examples of crowdfunding platforms.
Peer-to-peer (or peer-to-peer) lending
Peer-to-peer businesses support lending by connecting people or businesses that need money with investors. Applicants complete online forms and peer-to-peer lending institutions provide credit scores to potential investors, who can then decide whether or not to lend.
Investors receive their money every month, plus interest. In this way, they don't have any company they give money to. The simplest example here is that of a bank loan, but the borrower pays a lower interest rate than would be paid back to the bank and the investor receives a higher return.
More than they would have received from a regular savings account or other bank. There is a risk, however, because the government does not protect the investor's money. Examples of peer-to-peer lending companies are Lending Club and Prosper.
Equity Crowdfunding
It is a form of crowdfunding where investors share ownership in the company, usually through shares. Although their initial investment is not repaid, they will receive a share of the profits if the business is successful.
Investments are not low; they often start in the thousands. The rewards can also be greater than conventional investments, but equity-based investing is also risky because there is no guaranteed return. Startups don't pay dividends or interest upfront and there is little legal protection. This option is suitable for large companies. Our Crowd is an example of a product-based crowdfunding platform.
What are investors looking for?
Investors look at many factors when deciding whether to invest their money - or their company's money - in another business such as:
• A unique idea or product. A unique product or idea? If not, are these characteristics unique? If not, why would it sell?
• Strong business plan. Does the plan include market research and product elimination?
• Training and experience. Does the management team have the training and experience to achieve that goal?
• Financial data. This includes investments, expenses, profits, plans - all hard data.
Your investors will want you to be able to answer all their questions about your business plan and performance. You should be willing to talk about your failures and weaknesses, as well as your successes so far. This gives the investor confidence in you as a founder and enables them to trust you with their money.
You will most likely need access to your balance sheet, your financial statement. You should be able to explain exactly what you intend to spend their money on. They will also want to know how they will get their money from the business when the time comes.
What percentage is right for an investor?
The cost of a given business to an investor often affects how much money the investor is willing to invest in it. There are so many variables in every business that there is no single answer to determining a percentage. Every business is customized.
Keep in mind, however, that the investors, the compensation will not benefit them if the percentage is low. Giving 5% to business investors may not be reasonable, because it pays them less, even if the business is successful. It will also take them a long time to recoup their initial investment, let alone start making a profit. To attract investors, you need to show them where they are getting a good return.
What kind of investor do I need?
Finding investors is difficult. Finding the right investors for your position is even trickier. Do you need a business partner, an investor or an investor? Or else you need an investor? Whatever you decide, it's important to do your due diligence with any person or company that invests in you.
Check out their track record and other investments. What do they want to participate in your business? Apart from money, can they bring value through their network or expertise? Investing is a two-way street in a relationship that can last for years, so considering how the relationship will turn out is well worth your time.
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