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How to Find Investors for a Small Business

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If you want to start a small business or expand an existing one, then you’ll need to find money.

Co-authored by Helena Ronis

 

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One option is to bring on investors. There are many potential investors out there. However, you need to identify which ones will invest in your business and then put together a compelling presentation. When you meet with investors, remember to answer questions with confidence.

Part1

Identifying Potential Investors

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    Ask small business groups. You might not know where to begin. It’s probably best to start close to home. Meet with other small business owners or stop into your local Chamber of Commerce. Ask if they know of investors for your business.[1]
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    Contact the Small Business Administration (SBA). In the U.S., the Small Business Investment Company (SBIC) program helps small businesses find investors. Over $21 billion of capital has been channeled through this program. Each SBIC is privately owned. However, they are licensed and regulated by the SBA.

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    Find a local incubator or accelerator. These organizations help start-ups turn their ideas into a real business, and they provide funding as well. You can find an incubator or accelerator near you by using the National Business Incubation Association’s directory listing.[3]

    • Generally, incubators help start-ups or new businesses, while accelerators help already-established businesses grow faster.[4]
    • Incubators might not provide investments directly. However, they can help connect you to potential investors.
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    Look at online crowdfunding. You can reach investors worldwide by using an online crowdfunding site, such as Equity.net. These websites give you access to hundreds of investors who can help you finalize your business plan and grow your business.[5]
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    Remember family and friends. People who know you might invest in your business, especially since they can see your drive and determination. Remember to approach them as you would any other investor.

    • Friends and family will want some return on their investment, just like other investors. However, you might be more flexible in what you can offer. For example, instead of making them part-owners, you might want to provide them with free goods or services in return.[6]
    • You also should think about asking people you know for a loan instead of for an investment. With a loan, you don’t have to give up any ownership in your business. Also, if your business fails, you can wipe out a loan in bankruptcy.
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    Hire a business capital broker. These brokers have networks of potential investors that they can contact.[7] You can find a business capital broker online or by talking to other businesses that might have used a broker.
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    Consider if venture capital is right for you. Venture capital is a term used to describe a variety of investors, including private equity firms, venture capital firms, and angel investors. Although different, they share similarities:[8]

    • They take big risks for potential big financial rewards. Accordingly, venture capital usually invests in industries with large growth potential, such as technology or biomedicine. Very few businesses qualify for venture capital financing.[9]
    • They are actively involved in your business. For example, they will probably demand a seat on your board in exchange for investment capital. However, they often are experienced in your industry and can help you grow.
    • They have a longer investment horizon than other forms of financing.
    EXPERT TIP

    A start up is meant to reach 100 million in ARR — annual recurring revenue — in around seven years. That’s what investors are investing in.

    Helena Ronis
    Helena Ronis
    CEO & Co-Founder, VoxSnap
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    Find venture capital investors. Look online at websites such as Angel Capital Association, Angel Investment Network, and Funded.com.[10] Investors use these sites to find businesses to invest in.

    • The Angel Capital Association has a directory listing accredited investors. You can search by region or state.[11] Links are provided so that you can visit the investor’s website to learn more about them.
Part2

Putting Together a Presentation

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    Run the numbers. You need to know how much money you’re after. If you need a small amount, you might only seek out one investor. However, if you need a lot of capital, then you’ll need to know that as well. Calculate how much money you need for your small business.

    • Also consider how much of your equity you are willing to give up in return. Investors don’t give loans. Instead, they take a share of ownership in exchange for money. You’ll need to come up with something reasonable.[12]
    • For example, if your business is worth $100,000 and you want $25,000, then you’ll need to give up around 25% of the business’ equity.
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    Update your business plan. Your investors will want to see your business plan, which you should have already created if you are an existing business. The plan will identify your market, competitors, and include financial projections for five years.

    • Update the financial information so that it is current.
    • You should also bulk up the executive summary to your plan. Investors often will skip other parts but focus on the summary, so spend extra time on it.[13]
    • Make the business plan colorful and include graphics so that the information is easy to digest.
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    Research the investor. You need to know whether a potential investor will be interested in your business. Many investors focus on only certain industries, so you’ll save yourself time if you figure out ahead of time their focus.

    • Look online to check what businesses they have invested in.
    • Look at their LinkedIn profile to see if you know people in common. If so, ask whether the investor might be interested in your business.
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    Ask for a meeting. There’s no one way to reach out to an investor. If someone recommended the investor to you, then mention the recommender’s name in your email or when you call. Alternately, you can send your email to the recommender, and they can then forward it on to the investor.[14]

    • In the body of your email, clearly communicate what you do.
    • Mention the age of your business. Are you a start-up? Have you been in business for ten years?
    • Identify any other investors you have worked with. For example, an investor might have given you start-up funds five years ago.
    • Provide dates when you are willing to meet. Try to be as flexible as possible.
    • Proofread your email so that it looks professional.
    • Attach something to show the investor your business. For example, you might create a short video that shows your products or services.
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    Know your story. Investors aren’t only investing in a business. They are also investing in a person—you. Accordingly, they’ll want to know stuff about you. You need to be able to explain the following:[15]

    • What about your background has led you to this point?
    • How have you benefited from your previous business experience. Be prepared to point to specific achievements.[16]
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    Prepare for common questions. You can’t anticipate in advance everything a potential investor will ask you. However, there are some common questions you should think through:[17]

    • What has been the biggest mistake you’ve made in your business?
    • How are your competitors outperforming you? Why?
    • Is anything working against your business, e.g., new regulations, demographic changes, etc.?
    • Why are you seeking funding?
    • What are your long-term growth plans? How do you intend to get there?[18]
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    Get help from a Small Business Development Center. Your nearest SBDC can help you pull together a business plan, find potential investors, and prepare for meeting with investors. Contact the nearest SBDC and schedule an appointment.

Part3

Meeting with Potential Investors

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    Make a memorable presentation. You’ll probably make a presentation to investors, which can take many forms. For example, you might make a PowerPoint presentation or create a booklet for the investor to flip through. With other investors, you’ll simply sit and talk. Whatever form your presentation takes, it’s important not to simply repeat the contents of your business plan.

    • Yes, the investor wants to understand your financials, which is why you have a business plan handy for them to take and read. However, it doesn’t hurt to get creative.
    • Show the investor your product or service. If you are expanding a pastry business, have an assortment of pastries with you. If you provide a service, then you can create a short video that shows your business in action. You need to give the investor a concrete idea of what your business does.
    • Remember that pictures are more memorable than words. If you create a PowerPoint, don’t fill it up with text.[19]
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    Be brief. Your presentation shouldn’t take more than 20 minutes. If you use a PowerPoint, then it shouldn’t have more than 15 slides.[20] Practice your presentation until you it is the right length.
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    Ask for advice at the first meeting. Don’t dive right in and ask for money. A potential investor needs time to mull over your business idea before they can decide whether they want to invest. Accordingly, you should spend the first meeting tapping the investor’s business knowledge.[21]

    • However, you can subtly work money into the discussion. For example, you can say in an offhand manner, “I’ve been thinking I’d need $130,000 to open a new store in that location, but I’d like to hear from you if there are hidden costs you’ve found in your experience…”
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    Be honest. An investor won’t cut a check until they perform due diligence. They’ll want to take a closer look at your business financials, and they will uncover any misrepresentation you make. Always be honest in your business plan and in your conversations with potential investors.[22]

    • Admit when you don’t know an answer.[23] An investor will appreciate your honesty.
    • If you lie to one investor, then they will talk to others in their community. You’ll get a bad name and not be able to find any investors.
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    Project confidence. Potential investors want to see that you have faith in your business. Avoid being arrogant, which shows that you are insecure.[24] Instead, project quiet confidence in the following ways:

    • Listen. Insecure people chatter all the time and laugh awkwardly to fill up silence. Be prepared to listen.
    • Stand up straight. Put your shoulders back when you sit and stand.[25]
    • Make eye contact when talking and listening to someone.
    • Avoid fidgeting.
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    Remember to ask the investor questions. Any investor will take an ownership stake in your business. Accordingly, you’ll need to vet them as well. Ask the following questions before agreeing to work with someone:[26]

    • What other projects are they investing in? Check whether or not they are similar to your business, or whether they are in different industries.
    • When was their last investment? If the investor hasn’t been investing in a while, they may not be serious.
    • How do they plan to increase your company’s value?
    • What factors will you consider before deciding to invest?
    • How active do they want to be in the business? Does the investor want a seat on the board, handle day-to-day operations, etc.?
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    Follow up with the investor. After a first meeting, thank the investor by sending them an email. It’s unlikely that they’ll agree to invest after only one meeting, so you want to keep the doors of communication open. A short, professional “thank you” email can do the trick.

    • You can also keep the investor updated on the progress of your business. For example, if you were rolling out a new product, let them know how it is going.
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    Stay professional if rejected. It’s hard to tell why people choose not to invest in businesses. You might not have been a right fit, or they might have already chosen to invest in a similar business. Regardless of the reason, you can control how you respond. Stay professional and thank them for their time.

    • Remember that you might run into the investor later down the road, when they are more willing to invest in you. There’s no reason to burn bridges right now.[27]
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    Keep trying. Avoid being discouraged if you don’t get many offers, or if every presentation you give results in a rejection. You probably haven’t found the right investor yet.[28] Keep searching, because the perfect investor may still be out there.
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