Growing businesses need access to additional working capital to fuel growth opportunities that come their way. One of the most common ways to increase monetary assets is to look for small business investors. Investors (either an individual or a group of individuals) are people looking to invest money in promising businesses in exchange for a sizable return in the long run.
Finding investors is the easy part; the real challenge is convincing them to support your company rather than hundreds of other small businesses. Fortunately, there are several ways to increase your chances of landing an investment deal.
What Are Investors Looking For?
The first step to attracting investors is knowing what they’re looking for in a company. Investors consider several factors before putting their money into another business, including the following:
- A comprehensive business plan;
- The uniqueness of an idea or product, as well as its features and salability;
- Financial data, such as expenses, forecasts, and latest profit;
- Management team (experience, education, credentials, etc.); and
- Success metrics.
Ultimately, investors want to know how they can get their return on investment when the time comes.
How to Attract Investors to Your Small Business
Now that you know what investors want, the next step is to strategize ways to make investors see your business’s potential. Some investors may want you to be more persuasive, while others prefer seeing hard facts.
It’s best to combine both strategies so you’ll have a reasonable shot at obtaining the funds your business needs. With that said, here are seven simple ways to attract investors to your small business:
1. Research on Prospective Investors
Approach small-time investors if your company is at its initial stages (about one to five years in business). Investors who seek out small startup companies are more likely to take the risk of funding yours.
Find out everything you need to know about potential investors, such as venture capitalists or angel investors. Analyze their previous investments and try to pinpoint a common variable. Are they interested in companies looking for innovative tech solutions? Do they prefer to fund startup companies? If you can, find out if they have invested in businesses similar to yours.
Doing your research on prospective investors and figuring out their interests can narrow down your list. It also shows them that you’re serious aboutfinding a suitable investor for your business.
2. Create a Marketing Research
Does your business solve an actual problem? Do you have a market for it? You need to prove to potential investors that your products or services are solving problems that matter. Before pitching to your would-be investors, it’s best to create marketing research to lay the foundation of your proposal.
3. Convey Your Passion
What drove you to start a business? Investors want to see that you’re committed to your cause and that you’re in it for the long haul. Show them that you’re dedicated to grow and establish your business even when the going gets tough.
Keep in mind that investors aren’t driven by passion alone. While being passionate about something can be inspiring, it should always be supported by facts. For instance, in your business plan, you can include potential problems your business might face along with strategies on how to solve them. This extra effort shows lenders that you’re passionate enough to make your business work against all odds.
4. Pitch Your Ideas ButBe Realistic
After selecting a few potential investors, it’s time to pitch your ideas. Your pitch should include a clear and well-explained description of the type of investments your business needs and for how long. Build an honest and persuasive presentation of how your business grew and what you’ve achieved so far.
Another important factor you need to include in your pitch is the timeframe as to when the investors can start gaining the return. Create a detailed business plan outlining the achievable goals and the steps you’ll take to reach them.
5. Know Your Business
This tip may seem like a no-brainer, but it’s important to reiterate: You should be able to answer any questions about your business, even if it’s not on your business plan. Pitching to investors can be nerve-wracking but remember that this is your business. You shouldn’t be confused or uncertain about anything.
6. Partner with Your Investor
Some investors are satisfied with investing their money and collecting returns, while others want to be more involved in your business. Angel investors can become your mentos, consultants, or representatives. On the other hand, venture capitalists may want to have a seat on the board of directors. Business owners should be open to partnerships and flexible solutions when approaching potential investors.
7. Learn from Your Mistakes
The road to business financing is paved with rejections. If your negotiations with prospective investors didn’t go as planned, try to figure out what went wrong during the pitch. The investors’ responses to your proposal should give you an idea of what caused the rejection and what points you need to improve on. Analyzing the situation will help you create a better proposal as you approach other investors to fund your business.
How Investors Differ From Fast Loans
Many business owners often confuse investors with fast loans. Investors are individuals or organizations that provide working capital for your business in exchange for a share of the company. On the other hand, fast loans or business loans provide you with funding that you need to repay over a specified period.
So, which option is better for your business? Choosing between a loan or an investor requires extensive research. You’ll need to evaluate your business and your financing options to ensure you’ll get the most value.
Finding investors who are willing to invest in your business can be challenging. This is why it’s crucial to understand your financing options and create strategies to attract investors to your small business will increase your chances of securing much-needed working capital.