Venture Capital Blog

How to Get Investors for a Small Business?

Are you looking for the precise steps to receive financing for your small business startup or small business development? There are small businesses that grow naturally with only a small initial investment and are self-sustaining after just a few months.

Unfortunately, however, these cases are sporadic, and the reality of the small business environment shows us that a business usually needs constant investments. It needs to develop and reach the stage where the profit is higher than the money invested. Learn how to find investors as a small business owner and enjoy your success.

Types of Investors for Small Businesses

Before searching for the right investor, get informed about the types of investors. Potential investors have features that could help you grow a successful business. So, check the following list before submitting the funding request:

Private Investors

A private investor helps many business owners develop their products and services. One form of private investment is peer-to-peer lending, which offers connection services. Such professional investors are considered social lenders or crowd loan providers. They have their own capital that can be invested in your business model. Private investors are perfect for startup funding. At the early stage, seeking funding is challenging, but you can use personal relationships to find suitable investors on P2P platforms.

Angel Investors

It is difficult for the completed business plan to quickly reach several angel investors who might be interested in possible financing. You can find angel funding platforms that act as a link between entrepreneurs and angel investors. Suppose the business idea you want to develop does not turn out to be attractive to anyone. In that case, the business plan goes into a database that can be accessed by financiers when it is discovered a suitable angel investor. You can find angel investors to cover your startup costs in several weeks.

Venture capitalist (VC)

A venture capital (VC) company is often responsible for managing funds from several investors and looking for very particular sorts of companies to invest in. Venture capital firms make investments in high-risk and high-return situations.

The investment of venture funds is deemed long-term at five to eight years since that is how long it takes for a firm to be ready to sell or go public. It is the desired conclusion for most venture capitalists and will most likely affect how they lead your company.

Usually, the investment capital of VC firms varies, and finding investors will be challenging if you don’t know the budget that could improve your business structure. A venture capital company doesn’t rely on your personal financial situation while you apply for its investor funding. Your business decisions and financial statements weigh more for your business to grow when you deal with venture capital accredited investors.  

Guide on How to Find an Investor for a Small Business

When you don’t have your own money to invest in your business, investors are your best choice. But you should have a solid understanding of how to find someone to invest in your business. Here are several tips that will help you get investors for your small business:

Identify What Budget Do You Need

In the current economic conditions, you might think finding investors to invest in your business is impossible. The truth is that many people have their own money to invest, but they expect a decent profit from their investments. To make an investor consider small businesses, you must convince them of how much funding you need and how this money will work to grow your business.

Get a Small Business Loan

For many entrepreneurs, small business loans are a common source of financing. Banks, credit unions, or other traditional financial institutions may become potential investors for your business. The bank can provide loans for working capital, equipment purchases, or different needs. Ensure you are prepared with all the necessary documents and information and can repay the loan on time.

Check Government Funding Options

Government funding programs may also serve as prospective investors. For example, the U.S. Small Business Administration offers grants to entrepreneurs looking for investor connections. You can get specific amounts if you present financial projections of your business for the next five years. Small Business Investment Company (SBIC) is one of the services that helps business owners get necessary financial assistance. Its investment opportunities go perfectly with self-funding.

Try Crowdfunding

Crowdfunding is a method of raising funds for a business from a large number of people known as crowdfunders. Crowdfunders, who can be found on crowdfunding platforms, are not technically investors because they do not receive a portion of the company's ownership and do not expect a financial return on their investment.

Instead, crowdfunders anticipate receiving a "gift" from your firm in exchange for their donation. Frequently, that present is the product you want to sell or other unique benefits, such as meeting the business owner or having their name appear in the credits. Businesses can raise funds without seeking investors for too much time. It can also be friends and family members.

Equity crowdfunding is also popular among company owners because of its low risk. Not only do you get to control your firm, but if your plan fails, you're usually not required to reimburse your crowdfunders. Because each crowdfunding platform is unique, read the tiny print and fully grasp your financial and legal duties.

Tips for Soft Skills

Besides technical knowledge, as a business owner, you must have soft skills to help you find and keep your investors engaged. Here is our advice in this regard:

Have Low Expectations

Investing often demoralizes startup founders simply because it's more complicated than they expected, which is discouraging. Thus, the lower your expectations, the harder it is to be disappointed. Startup founders tend to be optimistic, but that's the wrong way to approach raising money. It's better to assume that investors will always let you down.

Prove You're a Good Bet

So, to prove you're a good investment, you don't have to show you're going to succeed, just that you're a good enough bet. What makes a startup an excellent bet? You need to target your business to a large piece of the market.

Founders typically think of startups as ideas, but investors look at them from a market perspective. Accordingly, your target market must be large and able to capture it in perspective. You don't have to be part of a big market when you're just starting, especially since it's often better to start with a small market that will either turn into a big one or that you can switch from a large market.

Be Flexible

Investors usually have two questions: "Who else are you talking to?" and "How much are you trying to raise?". They don't necessarily expect you to answer the first question but are banking on an answer for the second. In this case, it's best not to tell them an exact amount, not as a way to play with them but because you shouldn't have a fixed amount of funding. It is an outdated habit that worked when startups were more expensive.

The advice would be to tell investors that there are different paths you could take depending on how much you've raised and to devise scenarios for what you could do with more and less money. At the same time, your message must be that: "We will succeed no matter what; only more money would allow us to do it faster."

Don't Take Rejection Personally

Being rejected by investors can make you start to doubt yourself. They are more experienced than you, though. If they think your startup is "lame," they're probably right, right? Maybe yes, maybe no. How rejection is handled must be precise. You shouldn't ignore rejection. It could mean something, but you shouldn't automatically get demoralized, either.

So when you get a rejection, use the information in it and don't focus on the rejection. If an investor gives you specific reasons for not investing, look at your startup and ask yourself if they are right. If there are real problems, fix them. Don't just take their word for it. You should be an expert in your field. Find out what isn't working and modify it. Don't just think, "Investors are stupid". Often, they are, but find out exactly where you're losing them.

Avoid Inexperienced Investors

Although novice investors do not seem threatening, they can be the most dangerous because they are very nervous, especially in proportion to the amount they invest. Raising $20K from an angel investor for the first time can be as much work as raising $2M from a VC fund.

Of course, someone has to take money from novice investors. Otherwise, there would be no experienced financiers. If you decide to do this, make sure you manage the process yourself, including the documentation part, or just use them to supplement a larger round led by someone else.

Don't Try to Be Something You're Not

Although many investors, constrained by time or lack of technical knowledge, will find it challenging to evaluate what you do, your confidence could convince them. You need to show that you are impressed with what you have done. If you've done something good, you're doing your investors a favor by telling them about your idea. If you are not convinced of this, perhaps you should change what your company does.

However, it's important to pretend you know more about things you don't because trying to hide your inexperience can overshadow your talent. You can afford to be honest about what you haven't realized yet.

Bottom Line on Looking for Small Business Investors

Regardless of how funding is requested, most investors impose conditions that take work. The most important criteria are not the most advantageous price and, most of the time, not very good ideas, but how quickly a profit can be made from this transaction. That is why a detailed business plan is necessary.

Analysts say that many companies currently filing for financing have a stable future but are facing financial bottlenecks and are thus at risk of insolvency. Due to cumbersome and not fast procedures to receive a bank loan that can help, entrepreneurs turn to investment funds or business angels willing to grant a quick high investment, which would be the perfect solution to ensure the continuation of the business.

Topics: New Investors Crowdfunding Startup finance venture capital