How to Find Investors for Small Businesses
Finding investors for a small business can be one of the toughest jobs of an entrepreneur. Plenty of people have the funds to invest in your business, but few have the combination of understanding, investment focus and risk tolerance to become your investors. You must find the right potential investors and inspire them to risk their money on you and your business plan.
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Instructions
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Write a business plan. This step frustrates many entrepreneurs because they already know their business, or at least most of it. However, the purpose of a business plan is to prove that you know all facets of your business, and the plan's primary audience is your potential investors. Even if you already are running your business, your quest for investors suggests that you intend to grow the business, which, in turn, suggests that you have an underlying plan.
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Have fellow entrepreneurs or business consultants review the plan. Find them at business incubators, which are government-sponsored institutions that support startup companies. People in a local startup- company community welcome entrepreneurs to their networks and are happy to give feedback. If they don't have the time because they're too busy, they'll point you to people who can help.
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Write a three-page executive summary and a one-page executive summary of your business plan. A potential investor will eventually ask for an executive summary, and most of them want either a one-page version or a version of three to four pages.
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Apply to join an incubator. The act of applying will teach you how to explain your business plan in writing and through live presentations. It also will connect you with people who know the local investor landscape and who can advise you on where to find capital.
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Prepare and rehearse a 10-minute presentation. You may be allowed longer presentations, but most initial pitches are eight to 12 minutes.
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Network with your local startup business community. The chance that someone will point you toward an investor, and possibly make an introduction, is much greater than the chance that someone will steal your idea or decide to compete against you. Incubator websites will announce the times and locations of events for meeting people in the network.
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Solicit investors with the right focus for your business. Resist the temptation to approach every investor you find, since it will waste your time and theirs. Target investors who have a record of deals and an expressed focus on your industry, your geography, and your company's stage of development. Search the Internet for angel groups that match your business. Read their investment criteria. They'll provide good enough detail for you to know if they have potential interest in your company. Make a list of those who do.
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Follow the application procedures for the investors on your list. They'll either tell you what they want or write it on their websites. This may include paying a fee, altering the length, content and format of your business plan, sending a PowerPoint presentation, or using Angelsoft software.
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Prepare a valuation for your company. Compare your company to companies of known valuation that are similar to yours to estimate your growth potential, and base your present value on predicted cash flows per a discounted cash flow model. You'll need a valuation in mind if an investor wants aboard so that you know how much of your company he or she should buy for a given investment.
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Tips & Warnings
Ask people in your local startup network if there is a law firm willing to work for a reduced rate. Government programs will sometimes subsidize law firms to help new companies get going. You'll want the law firm available if an investor offers you a term sheet.
References
Resources
- Photo Credit business plan 2 image by Kelly Young from Fotolia.com
