Guide to Finding Investors
This guide was put together to help you choose which type of investment source fits your needs and develop the right business plan to succeed in bringing that investor on board. After reading through it, you will be that much closer to building the small business that you always dreamed of building.
Finding investors for your small business or startup is tough; they are many different options and avenues, each with its own demands, terms of repayment, and fluctuating levels of desired involvement in how you manage your enterprise. What’s more, even when you know which type of investment option is right for you, getting rejected a number of times are likely to happen. It may take many pitches and proposals before you find a source that supplies you with the funds you need to get your business going.
Crafting a Business Plan
No investor will take you seriously if you lack a sound business plan. In order to write a good one, there are a number of important aspects that need addressing. A detailed, thorough business plan will not only convince investors that you are serious, and that your goals are attainable, but will also allow you to stay on course and achieve your goals in an organized manner.
Write an Executive Statement
This will be the most important part of your business plan, and the one that investors will pay the most attention to. A solid executive statement will spell out your business’s mission and give a condensed, easy-to-follow summary of your product or service and how it fits into the market. It should include a description of your enterprise’s proposed or actual structure, including employment information as well as where you are based.
Set Clearly Defined Goals
Having firm goals in mind will help you in the pursuit of success, and go a long way in convincing investors that your startup or small business is viable and worthy of their funds. In your business plan, be sure to include a detailed five-year financial projection with all of the necessary proposed financial reports, including balance sheets, cash flow statements, return earning statements and income statements.
Calculate the Amount of Money That You Need
Obviously, if you are hoping for financial support from an investor, you’ll need to provide a detailed account of the funds you deem necessary for getting your project up and running. Typically this will be a extensive, five-year listing of all forecasted expenses, including funds necessary to pay employees, buy equipment, and other projected bills.
Additionally, you should include a proposal of your optimal terms of repayment, whether you are looking to take on debt or equity, and how your business will meet this obligation.
Achieving Visibility, Viability and Market Readiness
It helps to acquire an established presence and reputation before going to meet investors. This can be done in a variety of ways, whether it be presenting your qualifications, getting some bylines out on the internet, or meeting and establishing a relationship with members of the local entrepreneurial community.
Join a Professional Social Networking Platform
A necessary means of putting you and your business or startup out there is becoming a member of an online social networking platform. Through them, you’ll meet with like-minded entrepreneurs and possible investors interested in funding your business.
LinkedIn: Linkedin is a business-oriented networking platform aiming at connecting employees and businesses in similar fields. Users create profiles and establish online professional relationships with individuals of within their chosen industries. If you need to recruit employees for your fledgling small business, there is no better resource for doing so. Today, there are over 546 million members registered on the service in over 200 countries. It will be hard to be taken seriously by investment firms that you wish to receive funding from without first crafting a LinkedIn profile.
AngelList: AngelList is an entrepreneur-oriented website founded in 2010 with the aim of connecting startups in need of funding with angel investors all over the planet, free of charge. Founder Naval Ravikant started the website with the aim of democratizing the investment process, and providing all entrepreneurs with an equal opportunity for finding the funds they need to build their startup.AngelList helps you find the right investor(s) for you by sorting investment syndicates and established angel investors by region and field.
In addition to LinkedIn and AngelList, there are numerous other websites that fulfill a similar niche, including MicroVentures, Funded.com, Gust, and others that offer prospective entrepreneurs access to a worldwide network of potential sources of investment.
Another way to make a name for yourself and establish visibility, and possibly attracting investors, is blogging on topics related to the field in which you hope to establish a business. Blogging won’t earn you a ton of money, whether you start your own site, or get a job at a website, most bloggers make less than $3.50 a day with their blogs (although a select few do very well, indeed), but it’s a great way to hone your writing skills, get your name out there, and become immersed in the necessary research to help you develop your dream business.
Quora: Quora is a website where users may either ask or answer questions about any topic under the sun. What sets it apart is that community is full of well-educated, highly successful people from all fields, including entrepreneurs, CEO’s, scientists, doctors, lawyers and artists of all persuasions posting under their own names and listing their qualifications.
Questions are separated by topics, and popular ones like Venture Capital and Angel Investors are followed by hundreds of thousands of followers and include questions fielded by big names in the their respective industries. The best answers receive the most upvotes and posting thorough, well-rounded answers to questions that you are familiar with will help you gain visibility and establish connections with successful people in your chosen field, including potential investors.
Communicate with Personal Connections
A simple, effective way of seeking out possible sources of investment is to put the word out through any personal contacts you’ve established in university, grad school, or other walks of life that may possess beneficial business connections or established relationships with investors.
If you’ve gone to a good school, or been in an industry long enough, chances are you know people that know people, and it never hurts to hit up your rolodex, or Facebook friends list, to let those know of your small business plan in hopes of being connected to a source of investment.
Engage the Local Startup Community
There’s no substitute for going out and meeting with people face-to-face. Search Facebook for startup or entrepreneurial groups in your area, join them, and attend their events. Fraternizing with local entrepreneurs is a great opportunity to ask those in the know questions, get advice on how to attract investors and offer up your own knowledge.
Engaging in the community will help you establish confidence, beef up your knowledge of what investors demand/expect, and allow you to gain a foothold in your chosen industry, which will all help you bridge the gap between having a plan and landing funding.
An effective means of gaining visibility, experience, and meeting with investors is attending industry events where startups pitch their businesses, network with other entrepreneurs, and take stock of the competition.
All regions of the U.S. hold events like these, and they are easily searchable through sites like Technori (a Chicago-based company which specializes in curating tech industry events for startups, investors and those in media) and Meetup.com, which lists events in all regions for all types of interests, including business and tech industry-related conventions, as well as hobby-oriented gatherings and sporting events.
Finding the Right Type of Investor for You
Prospective small business owners and startup hopefuls face a slew of investment options in the quest to raise capital for their enterprise. While having a lot of routes to consider definitely doesn’t equal success–there will be lots of rejection along the way no matter how reasoned and effective your business plan is–knowing your options will help you to decide which route is right for you and better coordinate your plan of attack.
Simply put, an angel investor is a person with a lot of money who invests in startups or small businesses in exchange for equity or debt. Usually, angel investors are engaged in the practice for reasons beyond profit, such as an active interest in a great idea or burgeoning technology, or to repay the favor towards young entrepreneurs, just as investors took a chance on them when they were in the early stages of their career. Since most startups fail, the chances of the angel receiving a good return on their investment is slim.
When pitching to angel investors, the focus shouldn’t be specifically on financials and statistics, but rather then novelty of your product or service, and the problem it solves. Unlike a VC firm, they are spending their own money, and there’s a more personal connection involved in the investment, and a comparably higher return on the initial investment is usually part of the deal. This means that they may want to take a more active role in your business than other types of investors, but it depends on the individual.
Angel Networks & Groups
More and more angel investors are grouping together into networks focused on funding startups in a specific region. They pool their fiscal resources and share portfolios in order to choose the most attractive investments that they are collectively aware of. Usually angel networks have a funding cycle where they take on X amount of startups per year based on the attractiveness of their pitches and other qualifications.
The Angel Capital Association is an excellent listing of angel networks and groups by region, which also includes an events page listing major regional summits and meetings where startups can meet with and pitch to angel investors.
Unlike angel investors, who use their own money, venture capital firms amass large funds of other people’s money in which to make investments. Since they not using their own capital, and are more focused on making a good return on their investment, VC firms are typically much more choosy about the startups and businesses they invest in. In fact, just 2.5% of startups that previously received angel investment go on to receive VC investment.
Nevertheless, the amount of venture capital funding invested in recent years is vast, hitting the highest mark in a decade in 2017, with $84.2 billion, the highest since the dot-com bubble. So despite VC firms’ relative conservativism, there is a lot of capital moving around that could possibly be yours with the right product and pitch.
To attract VC investment, your small business/startup idea needs to come off as reasonable and professional. Firms will not take a risk on a pitch that is sloppy and poorly considered. They will also pay attention to your team: if your talent pool of employees are seasoned professionals and/or graduates from esteemed universities, you will have a better chance of getting a VC firm on board to fund your enterprise.
Friends and Family
You may feel reticent to ask affluent friends and family members for a loan to jumpstart your business, fearing that failure will irreparably harm your relationship. Yet, if you are fortunate enough to have personal relationships with people that can afford to extend you a loan, it can be one of the best avenues.
Due to their trust and confidence in you, friends and family are likely to offer you better terms on a loan than you would receive elsewhere, even if the total sum you receive might not be as high. Just be honest with them about your aims and financial needs.
Incubators give startups a slew of resources to help them get up and running, including office space, technology, as well as advice and training on how to effectively manage a business. While they might not directly invest in your business, they will often link you up with those that do. The price is that incubators may ask for equity in your business.
Few arrangements can be as beneficial to a fledgling startup than an incubator. Often, the office space provided by such a program will be shared by multiple startups, fostering an atmosphere of friendly competition and mutual exchange of ideas and support. Check out the National Business Incubation Association’s directory listing for incubator programs in your area.
Accelerators are like incubators except that they assist startups that are already up and running, rather than those in their infancy. They have much in common; providing workspace and necessary equipment and connect startups with clients and funding, yet are more selective about who they take on. If you want to be accepted into an accelerator program, your business must already have shown positive signs of growth and progress.
Crowdfunding isn’t for everyone, but popular sites like gofundme, Indiegogo, and Kickstarter have led to success for many entrepreneurs. The positives are that crowdfunding platforms give you tons of exposure, allowing you to open up your business to thousands of potential investors all across the globe, and lots of small donations are far easier to accrue than one or two large ones.
Doing this allows for instant, widespread feedback. If your idea is a great one, it may spread across social media platforms and even attract the interest of journalists and publications, increasing the likelihood of generating the funds necessary to get your business going. Alternately, if your idea isn’t so great, lack of interest or donations will quickly let you know it.
The practice does have its downsides, though. The transparency inherent to the practice, while beneficial in some ways, puts you on the hook for many different parties, and you must be open and communicative at all times. If something goes wrong, and you are not able to reach your goals, the bad news is likely to generate a lot of disappointment for a large swath of individuals.
Another concern is that your idea will be made public before it has reached fruition, putting it at risk of being stolen by a less-than-scrupulous copycat. Nevertheless, crowdfunding has worked for many entrepreneurs, with some raising far more than their initial goal, like Brent Morgan’s Superscreen project, a $99 tablet screen with the capability of interacting with phones that raised over $1M in funding in just a week, well over the target of $50,000.
To pull off a successful crowdfunding campaign, you must be well prepared, and write a comprehensive pitch with the aim of attracting funding as quickly as possible. Provide your investors with good incentives and be open and communicative about developments and possible setbacks.
Professional Networking Sites
Described above, sites like LinkedIn and AngelList can be an excellent means of seeking out investors. LinkedIn has an “Advanced” search option that allows you to weed through the millions of users, and find appropriate investors with the right choice of key words. Mutual contacts that you’ve established through the platform may also be able to connect you with the right investor.
Private Equity Firms
A time-honored means of receiving financial backing, private equity firms are investment management companies that invest in startups through several strategies. They seek to buy private equity in a young business with the hope of selling it at great profit after an extended period.
According to Fortune.com, private equity firms are currently holding a record amount of funds, nearly $1 trillion, that they are finding difficult to invest. Now might be a good time to seek out an investment from one such firm. Street of Walls has an excellent guide on meeting the criteria for private equity investment here.
Small Business Administration
Another option for financing your small business or startup is receiving a loan through the Small Business Administration (SBA), an agency of the federal government dedicated to providing financial support for budding entrepreneurs. You can seek out an SBA loan through credit unions and banks partnered with the agency, of at least one of which is available in all fifty states. SBA loans are more manageable than traditional bank loans because they offer longer repayment terms and lower down payments, an advantage for the cash-strapped small business owner.
Small Business Investment Company Program (SBIC)
Small Business Investment Companies, or SBICs, are private entities licensed by the SBA to assist in financing small businesses and other entrepreneurial ventures. SBICS came to be with the passing of the Small Business Investment Act of 1958 which addressed the universally recognized need for better access to funding for small businesses across the country. SBICs are funded by a combination of their own capital, along with SBA guaranteed borrowed funds. To see if your business qualifies for an SBIC, you can find out here.
Perfecting Your Pitch
An excellent pitch is tantamount to landing an investor to fund your small business or startup. If you don’t cover all of the key aspects of your idea, and explain how you will achieve success, your chances of getting an investor on board are slim. Even with the perfect presentation, rejections will happen for reasons beyond your control, that’s why it’s best to get everything right on your end.
Doing the Research
Knowing the types of businesses and startups that investors focus on is important: there’s no sense in wasting time courting or requesting meetings with an investor that doesn’t specialize in the industry that you are trying to get involved in.
Research which investors specialize in your field and have a history of funding similar enterprises, and make a list of fifty investors that fit this mold. After these steps, it’s time to reach out through the appropriate channels, either by contacting the investor directly via email, or attempting to gain access through a mutual contact, either a friend or associate or LinkedIn contact.
Writing the Email
Your email to potential investors should be clear and concise; identify what it is that you do, the business that you run, or wish to start, and why you’ve reached out to them specifically. If possible, reference mutual contacts, or investors that have funded your business(es) in the past. When you make the request for a meeting, list dates that work for you, and be as flexible as possible.
Honing Public Speaking Skills
Good public speaking skills go a long way in convincing an investor that your idea is a successful one. Some are born with them, while others have to work very hard to become comfortable speaking in front of people.
Some keys to good public speaking are:
- Use body language. Make gestures with your arms and move around, rather standing still with your arms at your sides. Don’t hesitate to look people in the eye and address them directly.
- Take deep breaths. If you are naturally nervous in front of crowds, this will help you to deal with the stress.
- Use direct language. Try to avoid filler words, and vocal tics. Ask leading questions to carry the audience into the next part of the presentation.
- Practice. This is the only way to get improve. Take recordings of your trial speeches, point out your weaknesses and work on them.
Many organizations exist devoted to helping people improve their public speaking skills. Toastmasters International, a nonprofit organization with over 16,000 chapters worldwide, is one of the best known and most highly regarded.
The organization helps its members overcome issues with public speaking through a manual based communication training program. During a meeting, several members take turns giving speeches on preselected topics while other members are tasked with judging their performance and filling other roles.
If your public speaking abilities could use some work, consider seeking out a chapter of Toastmasters near you and attending a few meetings before pitching to investors.
Dale Carnegie was an American writer and proponent of some of the earlier examples of what we know call self-help books. His most famous work, How to Win Friends & Influence People, in which he espouses his techniques for flattering people, winning friends, succeeding in business endeavors, and leading a happy life, was a massive bestseller and remains popular and widely read today.
Founded in 1912, Dale Carnegie Training is an organization that puts the man’s principles into practice, with a variety of learning-by-doing programs teaching students how to best operate in the workplace, achieve beneficial work relationships, pitch ideas, and succeed professionally in general. Since its founding, more than 8 million people have completed the namesake program.
Like Toastmasters, Dale Carnegie is another great educational tool to hone your public speaking skills before making pitches to investors.
Using Statistics, Graphs, and Other Visual Aids
Your pitch to investors without visual aids that help them picture your product, or service, and how it will be implemented. Create a powerpoint with photos that illustrate your ideas, as well as statistics and graphs that demonstrate your plan for success, how you plan to use the funds that you are asking for, and how you will deliver a return on their investment.
Remember: you are the one speaking, so don’t fill your powerpoint with a bunch of needless, distracting text. Let the graphs and pictures speak for themselves.
Make sure that be the time you are ready to deliver your pitch to potential investors, you know it inside-and-out, reducing the possibility of stumbling over your words, or losing your place. You can ensure this is so by delivering practice pitches to an audience of friends or loyal employees.
Prepping for Feedback
Be prepared to answer any questions that investors throw at you, either during your pitch or afterward. Think of all of the possible issues or concerns that might arise and come up with sound responses to these hypothetical questions. It’s good to have your practice audiences give feedback following your trial pitches in order to better prepare for the questions that investors may have about your business. You don’t want to be caught off-guard by an issue that you haven’t thoroughly considered.
Giving Your Presentation
When it comes time to give the presentation, it’s good to remember a few things: Be brief and direct, remaining conscious of not wasting too much of a potential investor’s time. Show that you are confident by standing up straight and giving eye contact. Listen closely and carefully to any feedback given, and demonstrate respect by thanking the investor for lending you their time.
After your first meeting with an investor, whether you think it went well or otherwise, follow up with a brief email thanking them and politely asking what they thought of the presentation. This will help to keep communication open between you and the investor, even if they decide not to come on board initially. You never know when they will come back around when the time is right.
Don’t Give Up
Even after facing rejection multiple times, never back down from achieving your goal of finding investors to fund your business. All of the most successful entrepreneurs have faced time and time again. It’s best not to sink into a pit of despair and complacence, but rather to keep your head up and learn from your mistakes. You never know whether your idea or pitch was faulty, or that the problem was just that it wasn’t the right time for the investor to take a stake in your business.
Nearly all successful people have faced rejection in their life, so you are not alone. Walt Disney was fired from his initial newspaper gig for lack of creativity, while Stephen King’s first book was rejected thirty times. A key characteristic of successful people is never backing down in the face of adversity or rejection.
In Fast Company, Ben Lerer, CEO of Thrillist Media Group, says this about learning from failure, “During the last nine years building Thrillist Media, of course there were times when I realized pieces of the business or certain strategies weren’t working. My approach is always to admit as early as possible that the approach is failing and work to resolve the situation, without letting it drag on.”