Funding is crucial to starting a business and creating a thriving, growing entity. You may have initially self-funded your business with cash, relied on sweat equity, or used credit cards to finance your business. However, you’ll need to consider outside capital at some point if you want to continue growing your operations.
With venture capital, traditional bank loans and online crowdsourcing, today’s entrepreneurs have more funding options than ever. However, choosing the right investor type is critical. Different investors bring unique benefits and assorted types of equity, control and repayment requirements.
We’ll explain how small businesses can find and attract investors, and how to choose the right funding source. Not all capital is created equal; ensure you can live with the investor you choose.
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Finding investors is one of the biggest challenges of starting and running a business. Generally, it’s best to start small and move toward more significant funding options later.
Before you seek a business investor, start operations on a small scale. All you need initially is a business concept, a product or service, and a plan. You’ll prove your concept and can adjust your plan to actual market conditions. Prospective investors will want to see a market demand for your offering and proof that you can be profitable before giving you their hard-earned money. Ideally, you should have a track record of at least a year.
Here are five ideas to help you search for a business investor:
The primary differences between angel investors and venture capitalists are that angel investors work alone, venture capitalists tend to invest more significant amounts, and angel investors specialize in early-stage businesses.
It’s easy to get a general idea of how to find funding, but attracting the right investors and perfecting your business’s sales pitch can be a major challenge.
Before you present your idea to investors, understand that you should view them as business partners. Working with like-minded individuals is best. Investors with a large enough stake in your company will ensure their voice is valued — especially when equity is on the table. Investor partnerships can be advantageous, but they can also be detrimental if forged on the wrong values.
When considering how to attract investors, remember the following best practices.
As part of your business plan and general business growth, you need a company mission statement to build around. Investors want to know your “why” — the reason you think the world needs your product or service. You should be able to communicate what problem your business solves in one or two sentences. You’ll lose investors and customers if your mission and goals are too complicated. You need a clear explanation of your business’s value to be successful.
Telling your brand’s story is crucial for finding investors. Investors look for brand value, especially regarding social media and a business’s presence in its local community. If you marry a strong company mission with a distinct, well-developed brand voice, you’re halfway to finding the right investors.
Finding the right investors means meeting with as many potential investors as possible. Accept any opportunity to talk. Numerous meetings will help you hone your business’s sales pitch, learn how to read potential investors, and decide who would make the best partners.
The process of finding funding is often ridden with rejection and judgment as you try to understand if an investor is offering a good deal. Taking as many meetings as possible will increase your chances of finding funding from the right sources.
When potential investors decide not to fund your venture, don’t give up. Rejection is part of the process. Do your best to focus on the next opportunity. When things get complicated, fall back on your business’s mission to remind you what you’re trying to accomplish. Remember that if even only one investor agrees to fund your business out of the 50 you meet, that’s still a success.
It’s best to move from small to large funding sources as your business grows. This order, while not set in stone, is a good general focus when considering various types of business investors.
If you’d like to pursue bank loans to fund your business, check out our reviews of the best business loans and financing options. We break down borrowing costs, loan terms, collateral requirements and more.
The biggest benefit of finding business investors may be obvious: They give you money to run your company. Businesses need capital to grow, and working with investors means you don’t have to grow the old-fashioned way — slowly, brick by brick. Instead, you get a cash injection, and your business can expand rapidly.
However, finding funding isn’t as simple as convincing investors to give you large sums of cash. Seeking investment means trading something for access to funding.
Working with investors is an excellent way to take your business to the next level, but it’s a trade-off no matter who provides the money. Weigh your options and consider what you have to give up to get the funding you need. This doesn’t have to be a cutthroat approach; it’s a crucial distinction to help you approach funding with a successful mindset.
Matt D’Angelo contributed to this article.