How to find investors for your small business (2023)

Getting a new small business into accelerated growth mode requires capital, and lots of it. While new small businesses have several optionsfinance your business, Ascommercial loans, it's admittedly difficult to come up with the money you need to grow without a substantial financial history. Some new small businesses also don't want to borrow too soon, preferring to provide capital to small business investors - a process also known asfinancial balance. If you're considering this, you probably want to know how to find investors for your small business.

Fortunately, the good news is that there are investors across the country looking for ways to finance worthy new ventures. According to a recent national study conducted in partnership with the Wharton School at the University of Pennsylvania, 63% of angel investors live outside of New York, Boston and Silicon Valley.[1]

Maybe you've built your business as much as possible, self-funded, or you're just curious about finding investors. We'll review important things to know when starting your search, how to find investors in your industry and what to expect when connecting with them.

Who are potential small business investors?

Small business owners are individuals who specialize in thisFinancing of start-up companies. (Occasionally these are investor groups or syndicates - we'll get to that in a moment.) Compared to the large checks that venture capital firms pay, they provide relatively smaller amounts of capital - usually in the tens of thousands, although sometimes a a little more. Learn more about the difference between in our guideAngel Investors vs. venture capitalists.

If you try to figure out how to find investors, you'll quickly discover that most investors generally specialize in certain types of companies. This could mean companies in a specific industry, a specific business model, or something like funding underrepresented founders.

Investing isn't done out of the goodness of your heart - it's an investment, after all. People who write checks are looking for returns, so they expect something in return. In general, equity. So small business owners understand that if they put their money into early stage companies, they're likely taking a multi-year gamble. But they are usually waiting for some kind of way out so they can make some money too.

Many investors are former entrepreneurs, who can offer good prospects to entrepreneurs. But as early-stage individuals writing relatively small checks, they won't be hugely involved in your day-to-day operations. However, they will be great connections to larger networks and resources across the board.

When seeking funding from small business investors, there are some important definitions to understand:

Angel Financing vs. Seed Financing

When you are trying to figure out how to find investors, you may be asked if you are just looking for a single small business investor or if you areRaising a full round of seeds. This is a question you want to know the answer to.

To fuel their growth with investors, some new companies will seek funding from just one or two angel investors, but forgo raising an entire seed round (which occurs before their Series A). This gives you a deep relationship with your investors and also allows you to hold a significant portion of the equity. Angel investors also rarely, if ever, sit on boards of directors. (More,raise a full round of financingtakes a lot of work.)[2]

However, many companies will launch seed rounds of varying sizes in which angel investors will participate. Make sure you know where you are falling and whether or not you expect to deal with it.Seed Fundsalongside angel investors.

Accredited Investors vs. Non-Accredited Investors

This is a US definition. Securities and Exchange Commission (SEC). It is important to know the difference betweenaccredited and non-accredited investors.

The part you must understand is accreditation at the individual level. As an individual, you must have earned $200,000 alone or $300,000 combined in the last two years with a similar trajectory this year. Alternatively, accredited investors can bypass the income requirement if they have a net worth of more than $1 million. There are also some other rules that I'm sure your lawyer is aware of and can think about.

OSEC requires investors to be accreditedessentially to protect the general public from taking big risks. So your investors really need to be accredited. Savvy small business owners know this - but you should also know this before you talk to someone about investing in their business.

Capital vs. Note Convertible vs. SAFE score

You're probably already familiar with the notion that if you're looking for investors, you'll probably have to forego equity. But the idea of ​​a convertible title could also be on the table, which is a little more nuanced.

A convertible bond is a type of short-term debt instrument common in early-stage corporate finance. Commonchange year, you receive financing, but instead of paying interest with principal, your investor receives equity over the outstanding balance of the loan based on a future valuation of the business. This is a good setup for many new angel and seed stage businesses that need cash but are not necessarily in a place where they are willing to value the business (especially when the whole business is intellectual property as intangible assets are difficult and highly controversial to the price).

An alternative to the convertible bond is theSAFE Notice, which means "simple arrangement for future equity". In contrast to convertible bonds, these are not debts but are converted into equity. It is usually shorter.

Individuals x groups or unions

Many people invest alone, but there are others who prefer to work in a group.

Why? First, no matter how much money or time you have, investing is expensive and risky, so doing it with other people is less expensive and less risky; and, as a result, it takes less time for one person in the group to do the heavy liftingdue diligencefor each.

There are many nuances to group angel investing that you can (and should) be aware of when looking for union investors. What matters most to you right now is that you can find small business investors from an individual or group, usually led by a lead investor.

Where to find investors for small businesses

The good news is that there is no straightforward approach to finding small business investors. The bad news is that there is no straightforward approach to finding small business investors. Do you know what we mean?

However, you have several options for finding investors. It is a process that takes time, effort, strategy and professionalism. But if your business is ready, one of these approaches to finding investors might work for you:

1. Reliable presentations

First, nothing replaces the support of someone small business owners trust. Find out if your company has someone within your reach that you can connect with and introduce your company to, who also has a direct line to an investor or investor network. YourFinance tells a story, certainly - but there's little better than a direct connection and support.

"The best pitches to potential investors are made by successful entrepreneurs who can vouch for you," says Vanessa Kruze, CPA, CEO and founder of Startup ConsultingKruze Consulting. "Investors prefer to present themselves as other entrepreneurs they respect and have worked with," says Kruze.

If your network with other small businesses isn't strong, think twice. Kruze adds, "Service providers, such as lawyers or accountants experienced in startups, can step forward."

2. Strategic networking

Likewise, think of other ways to channel individuals or groups of investors with networks you already belong to or could easily belong to.

Your alumni network is a great place to start looking for known investors, angel groups or unions, or connections with others who can advise you on how to find investors.

You can also contact industry associations, your local chamber of commerce or a local representative.Small business development center(SBDC). While it may seem odd to have a hyperlocal focus, some of your best and most unique connections can be made locally if you aren't competing for the same funding as other new ventures in big cities.

3. Online Investment Platforms

Or don't stay local - go as far away as possible. Many online platforms allow accredited investors to essentially buy opportunities to support new businesses, allowing small business finance to come to you.

Some of these platforms includeboe,Angel Investment Network, and, perhaps most famously,AngelList. Depending on where you keep your connection, you might be working with an individual or with a union. This depends on how the platform is structured.

Also, we shouldn't have to say it twice, use social media to let people know you're looking for small business investors.

4. Industry Conferences and Summits

If you don't have the network you want - or need - increase it. Samantha Urban, CEO of the San Diego-based services companyurban translations, recommends events that she believes attract hundreds of investors and CEOs. He secured self-financing of the summits after just two meetings. Urban adds this advice on finding investors:

“The key [is] building and nurturing those investor relationships. Find out what kind of companies they're investing in (B2B, B2C, Fintech, Tech, etc.), at what stage, how much revenue they'd like to see, how long it will take for due diligence, and other factors that make them excited about a possible agreement.

She also emphasizes that you build a relationship slowly and steadily. "Never assume you'll be invested right away," says Urban.

5. Cold band

This looks to be the biggest long shot of the bunch. And yes, in a way it is. But it works for some new businesses. When you send an email out of the blue, it's crucial to know who you're contacting.

Boston-based early-stage software startupFairmarkswas able to attract small business investors through cold advertising. Co-founder Tarek Alaruri says he believes budding entrepreneurs can be very successful with cold contact as long as they keep it personal.

Fairmarkit was able to connect with investors via email, LinkedIn as well as the phone. “If you understand the investor thesis and past investments (B2B vs B2C or biotech vs crypto), you can adjust your reach and be more successful,” he says.

6. Friends and family

You may feel uncomfortable asking your friends or family for a loan, but you can offer to make them investors in your business. If you like having a stakeholder that you know as a friend or family member, then this could be a great option for you.

The big bonus here is that they likely have your best interests in mind and want you to be successful with your new business. Make sure they sign aInvestor Agreementand go through all this with a lawyer to formalize the process and ensure that there is no room for disagreement or discord in the future. You must propose your business plan to them, just as you would to any other potential investor.

7. Universities

Many research-oriented universities are developing incubators and accelerators for students and alumni, making it easier for new ventures to find funding within the university system.

You can contact your alma mater or a school that specializes in the type of business you have to see if they have programs or money to invest. While this is a new practice among universities it is becoming more common and there is no harm in contacting a university and asking if they can help you and your business.

Understand what investors are - and what they are not

Before you start making your connections, you need to make sure that your small business investor expectations are realistic when it comes to finding corporate investors.

If you reach out, make sure you have an airtight field. You may not have a full round, but you shouldn't take your search for small business investors any less seriously. You need a presentation; You must know your numbers inside and out. You need a unique business proposition and you need an overview for your business. The investor needs to see a path to growth and a way to make their money back - and much more.

Next, the investor process requires due diligence, which takes time on your part and patience on your part. This process is not instantaneous. In fact, far from it.

And speaking of time, remember that it's rare for investors to hit rock bottom with you. Urban says that while he attracted investors after just a few meetings, others followed after months of dating. "Become friends over time and send updates to investors whenever you have good traction to share," she says.

the end result

As you try to figure out the steps to get your business financed, keep this in mind: not everyone needs small business investors.

For example, e-commerce companieslonely markwere able to use their sales and growth to get credit based on their Shopify numbers. Founder Nick Kinports says the funding “allowed us to quickly leverage without having to involve angel investors. In fact, we recently turned down an offer that we were seriously considering because of the loans.”

If you're wondering if you have the business finances, the acumen or the network, now you do.noBe your moment to find business investors. Don't forget that there are other sources of funding for new businesses; Even a business credit card with an introductory 0% APR can get you started.

Urban offers advice to all businesses, no matter where you are on your funding journey. "In general," she says, "always build your business with revenue in mind, not investment."

Article sources:

1. HBS.edu. „New study sheds light on angel investors in the US economy„
2. Ycombinator. com. „A Guide to Seed Fundraising„