Whether you are in the very beginnings of your launch phase, or you have a small business that needs a little push to get to the next stage of growth, finding a trustworthy investor can be key to realizing your goals. There is so much conflicting information out there, however. What type of funding is best? How to find investors for your small business in 2019 and the best way to reach out?
When you have a viable business plan for your start-up and you know how much funding assistance you need and what it will be used for, it is time to start looking for investors. This is a scary step to take, but to prepare is always the best route, so I wanted to share a few different routes you should consider.
Remember that you may need to speak to hundreds of investors before you find the right one for your start-up. This is a guide on how to find investors for your small business and eventually get funding for your business start-up.
However, before you jump into this immediately, it is necessary to get to know the various types of investors. You may not have considered some of them. Others are a better fit for the amount of money you need and how you plan on spending it. From friends to angel investors, we have got the rundown on the most sought-after business financing options for today’s entrepreneurs as well as start-ups.
Small business investors are individuals who specialize in financing early-stage companies. Occasionally, they are groups of investors or syndicates that offer financial assistance to both start-ups and small businesses. Compared to the large checks that venture capital firms dole out, they provide relatively smaller amounts of capital, which is usually in the five-figure range, though sometimes it can be a little bit higher.
When you are trying to figure out how to find investors, you will quickly figure out that a good portion of investors often specialize in something. That might mean businesses within a certain industry, a specific business model, or something else like financing under-represented founders.
Individuals who write checks are looking for returns, so they will be expecting something in exchange. Generally, that is equity. So, small business investors understand that when putting their cash into early-stage businesses, they are making what will likely be a several-year bet. But they usually are hoping for an exit of some sort so they can make some money, too.
Many investors are former entrepreneurs themselves who can provide informed perspectives to business owners. But, as early-stage individuals writing relatively smaller checks, they are not going to be immensely in your day today. However, they will be great conduits to bigger networks and resources down the line.
It is hard to believe, but locating investors is not the hard part of getting funded. And through the process of trying to raise money, an entrepreneur might have opportunities to talk to upwards of 40 to 50 investors, depending on their idea and location.
Just as it takes a quality idea and pitch to find success, it also requires a quality investor – one who works in the same field as the company, one who can shed wisdom throughout the development of the company, one who can come to a reasonable financial agreement that suits all parties involved. And that does not come without due diligence, a well-crafted pitch with a realistic business plan and a lot of research.
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There are many companies have launched specific platforms that provide information, research, and assistance with all aspects of getting a business launched, including ways to connect with investors. Companies such as Startups.co are providing a convenient channel for locating investors in an efficient way.
Already, Startups.co has 13.9 million members, which makes it the largest start-up community in the world and provides an extraordinary opportunity to get in front of some investors in your space for both funding through Fundable and mentoring. Another upcoming start-up platform is Gust with $1.8 billion already invested in start-up businesses.
You can find that angel investor who does not only will invest in your start-up but will also sit on your shoulder, offering mentorship, solid advice and provide access to their network of contacts. A few places to start include Funded.com, Angel Capital Association, and Angel Investment Network, all of which have thousands of angel investors who provide information on the type of investments they are seeking.
To assist you find a regional angel investor near you, Angel Capital Association even offers a directory listing by area and platform type. City Chamber of Commerce groups has also started to partner with angel investors to help stimulate new business opportunities for that city, including in areas like New York, Los Angeles, and Chicago.
If you play your cards right, however, and come armed with a solid business and marketing plan for how you will use the money, your application might make it through to dozens of qualified and interested members just ready to take on their next project.
While you can still go in search of individual angel investors, this membership model is more effective and can even give you the leverage to choose the partnerships that work best for you.
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Crowdfunding sites offer you with access to many different types of investor – from the general public with an interest to participate in the next big thing, such as Kickstarter, Pererbackers and Indiegogo, to philanthropists who believe in helping others realize their dream, such as RocketHub, to accredited investors seeking new ideas to fund such as OurCrowd.
Each crowdfunding site has its own interest and way of incentivizing investors, so study each one carefully to see which one most closely aligns with your strategic goals and vertical.
Your start-up just like your baby and you want it to grow and flourish, so working with an incubator or accelerator gives you a whole host of investor resources to watch that business grow up and succeed. These investors are primarily taking interest in a bigger role to help turn your idea into a viable business model as well as provide the funding sources to make it happen.
These incubators and accelerators even offer a physical space to set up your office, making it easy to work with you directly. This is a great place to exchange ideas and grow together.
That National Business Incubation Association (NBIA) has a directory listing to help you find a business incubator member in your area. In exchange for funding, they may want a piece of your start-up, so you will need to decide how much you are willing to give up.
Start-up accelerators, such as 500Startups, TechStars and Ycombinator, offer advice, small seed funding and exposure to other investors through their own networks.
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Traditional sources like the Small Business Administration are still a good source for funding because of developing more programs in recent years to stimulate the economy. They primarily offer small business loans and grants, but these may be exactly what you need and are available with fair terms without having any interference or expectations that they will get a stake in your business.
Beyond LinkedIn, which is still a place to search for investors, numerous professional social networking sites have launched that can help connect you with all types of investors across all industry specializations and business segments. Many of these new professional social networking sites connect you with investors from other countries who want to participate in the global business environment and often bring your product or service to their part of the world.
Professional social networking sites to consider for investor connections include EFactor, Xing, Plaxo, Startup Nation, Cofounder, and Meetup.
Consider a conventional path to investor funding, private equity firms give you access to everything from a few thousand to millions in investment, primarily to those start-ups considered to be in the early stage with growth potential across a wide range of industries.
The objective is to sell their stake a few years after investment to reap a significant profit from investing in your start-up. According to Private Equity Network, private equity firms invest $347 billion in 2012 across nearly 2,100 companies in the U.S. If this seems like the kind of investment partnership you are looking for, Find Venture has a directory to help connect you to private equity firms now looking for new businesses.
With the incredible restrictions now involved with getting a bank loan for a start-up, new solutions have emerged through the advent of online lending platforms that serve a similar function. These can be peer-to-peer platforms, non-traditional lending sources, or large investors looking to help out small businesses and profiting from the lending terms. Some credible online lending platforms have Prosper, TrustLeaf, OnDeck and Lending Club.
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Not only can you spend time finding investors through the channels mentioned here, but you can also assist them find you through a concerted personal marketing effort. Means putting yourself out there where investors are bound to find you, including a website, social networking sites, guest posts on established blogs and personal blog posts, conversations on Quora and traditional media outlets.
Finding an investor in a friend or family member is not a hard sell because they already believe in you and are passionate about helping you succeed. Just remember if you use this funding avenue, make sure to keep your personal and professional relationships as separate as possible by getting everything in writing and clearly explaining the risk involved in investing in a start-up business and make sure they understand they could lose their investment. However, do not risk losing friends or family over investments.
Also if you are not flooded with investment offers or you are flat-out rejected several times, as well. Try, try again because it just means you have not found the right investor who aligns with your business needs. If you stop now and you may never find your perfect match.
As you are trying to figure out the possible solutions for financing your business, also, do remember that not everyone needs small business investors. For instance, e-Commerce company Lonely Brand was able to use their sales and growth to get loans based on their Shopify numbers. Founder Nick Kinports says the financing “has allowed us to lever up quickly without the need to take on angel investors.
If you are questioning if you have the business financials, acumen, or network, now might actually not be your time. Do not forget that there other business financing sources for new businesses, too; even a business credit card can help you get rolling in the beginning.