How to Find Investors to Help Open Your Business
Adequate financing is crucial when opening a new business. It seems it always takes longer to reach the break-even point where the incoming cash from sales covers all the required outgoing cash for expenses. Debt, in the form of a bank business loan, may not be feasible since the new business has no track record. Investors, whether private or institutional, also known as venture capital, are potential options. Start looking for investors six months before your planned business opening.
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Instructions
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Prepare your presentation materials. Finish your business plan. Investors will ask to see it. There's no sense looking for investors if you don't have the plan ready for presentation. After you've completed the plan, develop an executive summary of the plan. It should be no more than three or four pages. Complete a query letter that introduces your company and yourself. The last step is polishing your "elevator speech." that's a 30- to 60-second pitch about your company.
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Decide if your company qualifies for venture capital. Venture capital is generally from a professionally managed fund. The average amount of capital committed to one company at one time in 2009, was a little over $6 million according to a survey completed by PriceWaterhouseCooper. Of the total $16 billion invested, $6.3 billion went to 1,200 start-up or early-stage companies. Most of the money is invested in high-tech companies.
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Search for deals done by venture capital companies online by going to the MoneyTree.com website. The deals are compiled by stage, geographic area and technology. Compile a list of companies that have made investments in companies similar to yours and that are located within an hour or a two hour plane ride from your location. Get the names of the principals to contact and their mailing address by going to the firm's website. Send the cover letter and executive summary but not the entire business plan.
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Decide if you would prefer an individual investor, also called a private investor or angel investor. These are wealthy individuals who have met certain income and net worth requirements. Angel investors invest smaller amounts of their own money in earlier stage companies. Unfortunately they're not listed in the phone book or have websites.
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Expand your network. Tell people you're looking for investors. Attorneys are good sources because they often have wealthy clients. If there is a venture capital conference or seminar in your area, it most likely will be sponsored by the law firms that work with venture capital firms and angel investors. Look on the conference's website for the sponsors.
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Contact the local Small Business Development Center, SCORE, and your city and state's business development office. They can give you leads as well.
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Search your city's newspaper websites for articles on companies that have received investment. The article will often name the investors. Find the addresses in the phone book. Sometimes the attorney who handled the deal will be named as well. Also search online using the words "angel investors" or "private investors."
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Develop and send out press releases about why you started your business and when it's projected to open. Let the investors find you. Don't make the focus of the release that you're looking for investors but do include that fact.
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Tips & Warnings
Start early looking for investors; it will take more time than you might think.
Don't give up. You may only need one yes.
Obtain the services of an attorney to draw up the legal agreements.
