How to Find Investors
Almost every business will need to request funding at some point. There are many different sources of funding, determined primarily by your ability to provide a return on investment. Knowing where to find these investors and learning what drives their funding methodology is key.
- Difficulty:
- Moderate
Instructions
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1
Determine your audience. A person or business just starting out is selling to a different investor market than a more experienced business. Bankers want collateral for debt, and investors want a return commensurate with the risk involved. Start by asking these important questions: Are you looking for a loan (debt) or would you be willing to sell a portion of your business (equity)? How much control do you want over management?
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2
Contact friends, family and high-performing employees. Sometimes employees will invest in the company for equity share and friends will help promote your business. This is often an overlooked step in start-up funding.
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3
Contact an angel investor (see Resources). Angel investors are usually high-net-worth investors who invest in companies at the early stages in exchange for equity in the company. They are primarily attracted to start-up companies with good management or intellectual property. Use your personal network or angel investor forums to seek out investors.
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4
Contact a venture capital firm (see Resources). Venture capital firms are one step above angel investors. They usually invest more funds in exchange for a greater percentage of equity. They are also known for taking on a management role in the venture.
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5
Contact local and federal government programs. The Small Business Administration's All-Stars is a ranking of the best field offices (see Resources). If you have an agricultural venture or rural business, there might also be special funding available.
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6
Raise private and public equity. Private equity has become a popular option. While this is an excellent source for start-up funding, the challenge is establishing the partnerships. The private placement memorandum is the legal document that accompanies most private equity deals. You can also do a direct or initial public offering of stock for equity sales.
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7
Apply for a bank loan or hire an investment bank to manage a debt offering. Both require a substantial amount of credibility among business partners. Past performance will be scrutinized more than profit potential. Microloans are available for small-business owners, particularly in undeserved communities.
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8
Form strategic partnerships with both customers and suppliers. These partnerships can be a good source for short-term funding on payables and receivables. It is not uncommon for customers to extend terms on their good suppliers in need.
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1
Tips & Warnings
Investors want two things: a high return with no risk. Achieving a balance of these or learning how to compensate one for the other is the key to finding a committed investor base.
Consult an investment professional if you wish to explore any of the options stated here.
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References
Resources
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