Getting a startup off the ground is no easy feat. Complicating matters is the catch-22 of funding – You need money to start your business, but it seems like most investors won't give you money until they've seen a proven track record of success. Connecting with someone to provide financial backing can be one of the most difficult parts of starting a small business. Wondering how to find a small business investor? Consider these ideas.
Before you start your search for an investor, make sure you have laid the proper groundwork. Most importantly, this means writing a business plan. This is not something to do hastily. Investors want to see that you have a solid plan and realistic goals. Take your time and do thorough research, noting exactly how much money you need and how it will be spent. Also, discuss how you plan to make the money back to pay your investors. Ensure your estimates are as close to accurate as possible to avoid surprises down the road.
Get ready to leverage your connections by plugging in to any and every network you can. Join local small business groups and relevant trade associations. Contact your alma mater or nearby colleges to learn about any programs or support for entrepreneurs they might provide. Some local governments might even offer resources and networking opportunities for small business owners.
Where to Look
Now that you're prepared, you're ready to know how to find an investor for your new business. Here are some options:
- Friends and family are often the easiest potential small business investors with whom to connect. They are a good source for funding, because they will sometimes give you money interest-free or for no equity. But doing business with friends and family can be tricky and might negatively complicate these important relationships.
- Close relations or members of your professional network might also be good candidates for a partnership. In a partnership, two or more individuals invest money in and jointly own a business. Partnerships can be advantageous because they take all the burden off a single owner. And when the partners bring different skill sets and strengths to the table, the company benefits.
- Venture capitalists and angel investors will typically invest in businesses in exchange for shares. Many young businesses will not only benefit from the cash, but also the expert advice that comes along with this type of connection. However, some entrepreneurs have a hard time giving up full control and equity. You can find these types of investors online using a simple search or a directory.
- Crowdfunding is a new and extremely popular way for startup businesses to connect with capital. Instead of one large investment, many individuals contribute a small amount, usually in exchange for something like a product preorder or other acknowledgement. Crowdfunding is beneficial because it helps new businesses jumpstart their marketing efforts and connect with customers while seeking funding. However, some startups put all of their eggs in the crowdfunding basket, only to have a failed campaign deplete their resources due to the "all or nothing" structure of some platforms. Research the many platforms like Kickstarter and Indiegogo to determine which will help you best reach your intended market.
- Small business loans are a popular type of financing for growing companies. There are different types of lenders, from traditional banks to alternative online lenders to microlenders. Each addresses different needs and has varying rates and requirements. If you have a hard time securing a loan on your own, seek assistance from the Small Business Administration, which will back loans for small businesses to encourage lenders to take a risk on new companies and promote economic development.
With so many investor options, do your homework and decide which will work best with the goals and culture of your company. Can you handle giving up equity? Do you need a strong partner with business experience and connections? Do you meet the necessary requirements to secure a loan with manageable terms? Either way, get your business plan in place and start networking. These steps will help you connect with the right investor for your business.