No matter if you’ve just started out and you need some help, or you’ve been around for a while and are looking for more growth, your next step here would be to find an investor. These people may as well be the key to reaching your goal – one that will provide you with the backup that you need.
There are several types of investors that you may go for – and your business will only be successful if you pick the right investor. Go for the wrong one, and not only may you not see any improvement, but you may also suffer from it as well. This is why you need to make smart, calculated decisions – this way ensuring that your business will only flourish.
These are quite a few good ways for you to find an investor. So, if you found yourself thinking “I’m looking for investors for my business,” you might want to read on.
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Start with Family
Perhaps one of the most efficient ways for you to find an investor for your company is to reach out to your family. In this regard, you may either accept their “sponsorship” by means of cash (a loan) or through actual aid. Bear in mind that unlike other types of sponsors, family will also take the liberty to give unwanted advice – so, if you don’t need it, just say so.
However, Murray Newlands, an entrepreneur, public speaker, and business advisor, also dives into the benefits of asking your family to become your investors.
“Finding an investor in a friend or family member isn’t a hard sell because they already believe in you and are passionate about helping you succeed. Just remember if you use this funding avenue, make sure to keep your personal and professional relationships as separate as possible by getting everything in writing and clearly explaining the risk involved in investing in a start-up – and make sure they understand they could lose their investment. Don’t risk losing friends or family over investments.”[1]
Indeed, it can be quite a double-edged sword to have your family as your investors. For example, if your aunt invests quite a large sum of money, they have hopes that they might reap the benefits from you in the future. That being said, if the business fails and your plan does not work, she will see herself with no money and no chance to recover it either. To make sure that your relationship remains intact, you should make sure that everything is put in writing. Louie Ortiz of Monbi also has a few words of warning in regard to that.
“Asking your family or friends to act as your investors can both be a blessing or a curse, depending on who you are collaborating with. For example, if you have a family member that has the funds, they will be more willing to give you that money – simply because you are related to them. That being said, because you are ‘family’ they will also expect that you give them a lot of freedom. They may want higher shares because they are family, or they may try to tell you how to do things – also because they are family. The problem is that since you are related to them, it’s more difficult to cut ties – because after all, you are related. Make sure that you know who you are reaching out to.”
Don’t be disappointed if you aren’t flooded from every direction with offers. You should ask until you finally find your match – because only those that truly believe in you will decide to invest in you.
Look into Angel Investors
If you have no luck with your family, then you might want to give some thought into angel investors. As their name suggests, these investors are the ones that act like the “little angel on your shoulder,” giving you the funds necessary to get your business on the go. You may find angel investors free in quite a lot of places nowadays.
Partnering with one or two of these angels before you start your business will open up new roads for you, setting you up for success. Plus, unlike other types of investors (for example, the venture capitalists), these types of angel investors will not expect that you give them a role in the decision-making process. Their interest there is to help you get higher – but on your own terms. They will give you the funds necessary for you to do what it is that you have to do – but they will not be breathing down your neck in the process.
These investors typically use their own money to make this type of investment – unlike the venture capitalists that take that money from pooled investments. An angel investor will see your cause and then invest based on their belief that they will be able to reap benefits as well. However, they expect something in return – but that will be in the long run. Louie Ortiz also has a few things to say in regard to that matter.
“An angel investor will not give you money out of charity – simply because they are ‘angels’ like that. They see you as practically a worthwhile investment, and they are giving you the funds in the hopes that you will succeed, and they will reap the profits. For them, it is like a loan – one that they will eventually get back, with interest.”
There is also the issue of where you can find all of these investors. In most cases, you can find them on angel investor networks – generally, these are location-based so that you may easily find local investors. They might also be part of funding programs from investment groups or firms. Granted, you may not be able to see who the members are – but if you come armed with a great business plan, you should be able to attract just the right investors in working with you.
Consider Venture Capital
If you are reading any entrepreneur publications out there, you have probably heard before about venture capital along with the rise of VC companies. This funding method, while it is quite substantial, is not precisely recommended for most startup businesses. In fact, less than 0.5% of these new businesses can get venture funding through venture capital firms. It is generally designed to make the businesses grow – in most cases, a tech startup.
Still, if you do have what it takes in order to secure this type of funding, then the situation is different. The funding takes quite a longer investment – and a lot of the control over the business is actually given to the investor. Most venture capitalists won’t only put great emphasis on the equity of a company when “reaping the benefits,” but will also insist to have a role in the daily operations of your company. Venture capitalists are the complete opposite of angel investors, who will allow you to do business your own way – without meddling in your affairs.
Keep Equity Crowdfunding in Mind
A quite convenient alternative to the venture capital option is to go for equity crowdfunding. This investor type works pretty much like every crowdfunding campaign you’ve witnessed – from artists of comic books to the “it thing” in wine coolers. However, the difference is that you will not be giving away shout-outs, early access to products, or trinkets. Here, you will be providing equity instead.
There are quite a lot of investors looking for entrepreneurs, which is why crowdfunding is so convenient. Angel investor and product specialist Tanya Prive also finds great use in equity crowdfunding.
“At an early stage, an entrepreneur may think that outside of their own network they can only raise capital from accredited investors, venture capitalists, and banks. This isn’t true. Crowdfunding is a great alternative way to fund a venture, and it can be done without giving up equity or accumulating debt. Rewards-based crowdfunding platforms allow entrepreneurs to raise funds from the community in exchange for simply giving their tangible products or other relative gifts.” [2]
These equity crowdfunding campaigns are run on platforms that have the same purpose. Many of these platforms and campaigns have appeared ever since the JOBS Act, making it quite easier for people to find funding. There are quite a lot of investors looking for projects to fund, so you should take advantage.
That being said, like any other campaign for crowdfunding, you will have to stick to your marketing campaign and make sure that any potential investors will see your worth. You need to show them exactly why they have to pick you, and not any other business that is fishing for an investor.
When looking for an investor here, you also need to be ready to say goodbye to some of your autonomy as a company owner. In this regard, you need to think about exactly how much of that equity you’re willing to part with, and how bringing investors will affect the future of your business.
Make Sure That You Are Law Compliant
It is crucial that you make sure every investment opportunity that you dive into is legal. Learn about the main SEC requirements – including the difference between accredited and non-accredited investors. At this point, only accredited investors have the liberty of investing in particular offerings, as all of the requirements have been to prove that they can sustain any potential loss. This is necessary if your business is considered to be rather risky.
An accredited investor will have an earning income threshold of $200,000 in each of the previous years, and they also need to have a high net worth of at least $1 million. In order to remain lawful, you will require a process that ensures the investors you actually entitled to be working with them.
In this case, you might also want to ensure that you are in contact with an efficient attorney. While you may not know everything that there is to know about the law, your attorney will certainly know – and if you are ever in doubt that a particular investor is not qualified, they will let you know. By remaining in compliance with the law, you will be sure that your investor is at least one that can bring you to high peaks. They will also teach you how to find investors for real estate that are respecting the law.
Become Familiar with Debt vs. Equity Financing
In order to find a good investor, you might want to familiarize yourself with debt vs. equity financing first. Some may say that debt and equity financing is one and the same thing – but they could not be more different. With debt financing (for example, a loan), it is expected that you will pay the money back in full, plus interest. The lender will get a fixed amount of profit based on the length of the financing. On the other hand, with equity financing, things are slightly different.
With equity investment, that money is generally not paid back to the one that gave you the money. Instead, their returns are caused by the fact that they own a part of your company – and as the profits of the company grow, so do their earnings.
One of the perks of equity financing is that the investor wants you to succeed with your idea – because after all, if you succeed, they succeed as well. This is why, aside from giving you the money to help your business, they might also come with useful advice. The downside is that they will own quite a lot of your company – meaning that you won’t be able to do everything on your own.
If you are more of a “loner” and do not want to feel your investors watching your every move, you may want to consider debt financing. The investor here only lends you the money – and as long as you make the payments on time, you may do whatever you see fit with the money. However, the issue is that failure to pay back the money might result in you losing your business completely.
Final Thoughts
No matter if you are going for an angel investor list or crowdfunding, there are quite a lot of ways for you to find investors. Do your research, make sure that the person can afford to make the investment, and then start growing your business. Sometimes, to be successful, you need to learn when to say “yes” to help.
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