How to Find Business Investors
Raising outside financing is one of the greatest challenges that business owners face. Finding investors for your business can be a difficult and time-consuming process but it is a process that will significantly impact the company's performance. Some investors can bring more to the table than capital, and the company will benefit if you are able to find investors that can help shape the strategic direction of the business.
- Difficulty:
- Moderately Challenging
Instructions
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Preparation
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1
Draft a comprehensive business plan for your company. The business plan should include a summary of the products and/or services provided by your company, an overview of the industry and competitive landscape, the background and experience of senior executives, and financial projections. The projections should be realistic and should clearly spell out the assumptions you have made regarding market share, growth in existing customer accounts and the acquisition of new customers. The business plan should also explain how the funds will be used and how quickly you think the company will generate a return for investors.
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2
Hire an appraisal firm to estimate the value of the company's assets. The appraisal should include any real estate the company owns as well as other physical assets such as equipment and machinery.
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3
Produce at least one year of audited historical financial statements. The financial statements should ideally be audited by a well-known accounting firm and should include a balance sheet, income statement and cash flow statement.
Sources of Funding
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1
Approach commercial banks. A business lawyer will likely have a list of contacts at different banks, or you can visit a large bank and ask to speak with a commercial loan officer. The bank will ask to see your business plan, asset appraisal and the audited financial statements. Banks will focus on the value of the company's assets (which would be used as collateral) and the company's cash flow statements (which help them determine the company's ability to pay back loans).
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2
Seek a loan or a grant from the U.S. Small Business Administration (SBA). This step should only be taken if you cannot secure adequate funding from commercial banks. Do not be discouraged if commercial banks turn you down, as many will not provide loans to small businesses with limited historical track records. The SBA is a government entity that provides funding for small businesses. The SBA operates like a commercial bank, but has much less stringent requirements when deciding whether or not to issue a loan. The SBA will likely ask to see your business plan and historical financial statements.
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3
Approach equity investors, such as angel investors or venture capitalists. These investors have a higher appetite for risk and will be less likely to focus on the historical track record of the business than banks or the SBA. These investors will be extremely focused on your business plan, particularly your growth projections. Additionally, they will require an equity stake in your company, which reduces your ownership in the business. You should have an idea of how much equity you are prepared to give up before entering meetings with these investors.
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1
Tips & Warnings
In addition to your lawyer, there are many websites that can provide you with a list of venture capitalists and angel investors in your area. One particularly popular source is vFinance.com.
Some banks or investors may ask you to pledge personal assets, such as your house or personal savings, as collateral for loans. Be very careful in pledging personal assets; if you pledge your house as collateral and your business is unable to repay the loan, you will likely lose your house to the bank. Be sure to review any financing documents with your lawyer before signing anything.
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References
Resources
Comments
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sarjit
Jul 02, 2010
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