International investors can add value and scope to your business.
Attracting international investors to your business can be a daunting task. It requires time, effort, a lot of confidence in your business, and the willingness to handle rejection. But with the right tools and preparation, you can be well on your way to breaking into a foreign market with the support of an international investor behind you.
What is an international investor?
An international investor is any person or company based outside the U.S. that invests in your business. These entities invest in your business based not only on its American success but its projected success in an international market, likely their country of residence. Although your international investor may know their market better than you do, they will likely expect you to prove that your company can succeed there.
How to attract an international investor
If you think international investors are right for your company, pitch them by following the below steps.
1. Start with a strong business model.
Every good business decision is built on a strong and clearly thought-out business model, which is a design for the successful operation of your business. It identifies your revenue sources, customer base and finance details. [Read related article: How to Create a Sustainable Business Model]
Your business model needs to prove that your business can be profitable in the international market by showing how successful it has been in your own country. Breaking into international markets is often riskier than the domestic market because there are several new variables to contend with, like different government regulations and the mutable nature of the markets. Thus, international investors tend to be more cautious when taking on new investments, and you'll have to work harder to convince them that your business is worth the risk. A detailed business model that preemptively answers investors' questions will go a long way in determining your credibility as an investment.
2. Be prepared.
Before seeking international investors, you should prepare as much data, research and information as possible. You will need to know everything about your business, the market you are looking to enter, and how your business will perform in that market. Your preparation inspires investors' confidence in you and shows that you can navigate the complicated world of foreign markets.
You should have the following on hand:
- Significant data that shows your business's success in your domestic market
- Projections on how you plan to continue that success internationally with supportive data
- Documentation of how your business will work under the concerned countries' government regulations (e.g., if you need government approval, have the forms and a timeline ready)
- A list of potential pitfalls and how you plan to navigate them
You should also be able to show what an investor could gain from partnering with your company.
"Focus on the benefits [the investors] will receive from investing in your company versus a company from their own country," said Stacy Caprio, founder of Accelerated Growth Marketing. "If there are tax or profit advantages, let them know and be clear about it in your marketing."
You should also educate yourself on the cultural norms of the country or countries you plan to work with, as ignorance or miscommunication can be disastrous for a business.
3. Choose between vertical and horizontal foreign investment.
There are two main types of foreign direct investment – horizontal and vertical. Horizontal investment is the most common and occurs when a company (investee) merges with another company (investor) that offers the same products or services from a different country to become stronger in that market. The goals are to reduce competition and to gain a piece of foreign market share.
The second type is a vertical investment, which is when an investor merges with an investee of a different country for the sole purpose of adding value to their supply chain and complementing their business. For example, your company may produce a component or strategy that the investor needs.
To decide which type is best for you and your business, consider what products or services you provide and what you are looking to gain from entering a foreign market.
4. Build an international network.
If a business model is the foundation of your business, then networking is the catalyst for its growth. It is difficult for any business to get off the ground without a good network, and even more so for a business looking to go international.
An easy place to start is online. Use LinkedIn to find the industry leaders and major investors in your space, and connect with them through a shared contact or interest. [Read related article: How to Network on LinkedIn Like a Pro]
A social media presence that accurately conveys what your business does will solidify you as a legitimate investment opportunity and is one of the easiest ways to build a network. You can also attract attention by becoming an industry expert yourself, producing and sharing relevant content on your social media profiles. The key thing to remember is that you get out what you put in – so being a passive follower won't cut it.
If your alma mater had a strong international presence, such as a branch campus in another country or a partnership with a foreign university, see if you can make connections with professors or fellow alumni, especially if they are in the market you are looking to enter.
You can also build an international team right off the bat to make international connections more naturally, said Kaiwen Wan, CEO of Palapod. "We attract international investors by being a diverse team ourselves," she said of her own company. "Even though we're based in New York, I grew up in China, and have been able to raise a decent chunk of my seed round from investors in both China and New York. I have an American-born co-founder who leverages his network domestically, and another team member from India to draw funding from the subcontinent."
Outside of the digital space, see if there are networking events, conferences or symposiums near you that you can attend in person. If a list of attendees is available, go through it to see who would be most beneficial and appropriate for you to speak with rather than going up to people at random.
5. Use available resources.
You should consider your network one of your most valuable resources, which is why the effort to build up a good one is so important. You can use your network to make trusted introductions to investors or investment groups as well as to provide advice and guidance when you run into complications.
There are also many online resources for small business owners looking for investors. The U.S. Department of Commerce offers the SelectUSA program, which connects you with investors interested in your specific market, and several online investment platforms that can give you an idea of what investors are out there and what they're looking for. These platforms include Gust, Angel Investment Network and AngelList.
Though it might seem counterintuitive to look locally, you could also check out your local Chamber of Commerce or Small Business Development Center. They have the resources to answer many business questions, and you never know what connections you could make – some may have international connections.
What are the benefits of international investors?
Among the benefits of attracting international investors to your company are:
Growth in new markets. If you successfully draw international investors to your company, you can take this as a sign that people who know foreign markets expect you to succeed in them. The money these investors give you isn't just useful domestically – it can be the start of an expansion into new regions with new customers.
Potential for mergers. While a desire to grow your company internationally is certainly respectable, it's not always practical. Your path toward international success will likely be much stronger if you draw an international investor to your company. You and this investor can work toward a horizontal investment strategy that resembles an international merger for maximum potential success.
- Favorable exchange rates. The $50,000 you need for your company might cost a foreign investor far less to provide. For example, the British equivalent of $50,000 is, as of mid-November 2020, approximately 37,837.75 British pounds. Thus, international investors may be able to meet your funding needs more quickly than domestic investors can.
International investors may be drawn to your company for the following reasons:
Tax breaks. The tax rules for investments in the U.S. may be more lenient than the regulations your international investor faces in their home country. The logic is the same as when Americans store money in foreign tax havens – by investing here, your investor may lose less money than on their domestic opportunities.
Growth in the U.S. Just as you may look to an international investor to help you build a foothold in a new market, foreign investors often seek easier paths into the U.S. According to the U.S. Department of Commerce Select USA program, the U.S. is a leading investment destination due to its business-friendly regulations, large market size and more.
Risk diversification. Experts say international investment opportunities diversify risk. Think about it from your international investor's perspective: If they were to invest all their money in domestic opportunities and their local economy crashed, their investments would decrease significantly in value. If they instead spread their money across many countries, they reduce the chances that an economic crash would destroy their portfolio's value.
- More resources. Foreign countries may offer resources unavailable to investors in their home region. A prominent example is outsourcing. Many U.S. companies launch overseas operations because international labor can be cheaper than domestic labor. On the other hand, international investors may flock to the U.S. for access to its myriad of innovations and out-of-the-box thinkers.
Additional reporting by Max Freedman