- by Brent Davis
- 02. October 2022
For many small businesses, attracting investors is an essential process.
Many banks are reluctant to risk new ventures without a parent company and even small established companies.
This leaves entrepreneurs with no choice but to seek investors willing to back their ideas.
The process may seem complicated if you are new to the world of startups and investments.
Let's not sugarcoat things; it can be really overwhelming, even for those of us who have been through it dozens of times.
It can also be a long process and there is no guarantee of success.
Why do so many people undergo this stressful process?
Well, it can bring great rewards, both for the business owner and their investors.
Supporting the right idea can result in a high return on investment.
If you have a good business idea, chances are someone is willing to take a chance on your behalf.
However, many people fail at this process because they approach it the wrong way.
They give it to the wrong people or release it too early in the development process.Doing any of these can result in a total rejection.
Even if you manage to find investors, you may also face problems.
Inexperienced entrepreneurs are often so desperate to find an investor that they end up hiring the wrong type of investor.
Or worse yet, they exaggerate the potential of their company and are left with a mob of angry investors who lost money on them.
How can this guide help you?
This guide will help you simplify the process of finding investors for your business.
This will help you determine exactly what you need to do to be successful in this endeavor.
We talk about the pros and cons of attracting investors.
We explain the different types of investors that your company can get.
We'll look at how to attract the right investors and what those investors will be looking for.
We then cover the most important part of this process: creating a comprehensive business plan that will win over your investors.
We'll talk about how to present yourself to investors before covering some alternative ways to raise capital.
Most importantly, this is a guide and is not just meant to guide you.an investor,but to help you find the right investoryour business.
Pros and cons of corporate investors
If you are reading this guide, you are probably looking for investors for your small business.
We have no intention of discouraging you.
However, we would like to share some of our experiences working with investors as a small business.
Attracting investors can mean the difference between a dream and a full-fledged small business.
We believe that entrepreneurs should take the time to learn about some of the downsides of working with investors.
That way, you'll know exactly what you're getting yourself into.
an investor someone who provides capital in exchange for fractional ownership of a business.
If the business later runs into financial difficulties, it can hire new investors or trade ownership for more capital from its current investors.
This type of investment should not be confused with or treated like a loan.
The benefits of hiring investors
Many of us do not have the capital to start a small business.
Hiring investors may be a better option for many of us than taking out bank loans.
Having investors behind you can remove significant financial pressure and give you time to establish your brand.
Bank loans must be repaid regardless of the course of business.
Many small businesses with credit fail to reach their full potential before running out of capital.
Loans can also stifle growth in the long run, especially if your business has high overhead costs.
Investors keep a portion of the profits instead of spending some form of earned money, such as loan payments.Investors also do not charge interest.
Investors take risks when investing in companies. When you apply for a loan, you must pay it back, regardless of whether your business is successful or not.
Investments do not have to be paid back if the business fails.
The industry describes investors who want to finance the company but have no interest in participating in day-to-day business as silent investors.
Many companies prosper with the help of silent investors.
The Disadvantages of Hiring Investors
Although this system has many advantages, the process is not always easy.
Investor acquisition can have some real downsides, especially for novice entrepreneurs.
Many companies cannot find silent investors, which can put a lot of pressure on the company to produce growth.
As mentioned above, it is a risk for an investor to back a company. One that could really pay off, or one that could lose them a lot of money.
Because of this, they tend to want quicker rewards than a bank.
And they often drive short-term growth that doesn't necessarily benefit the company in the long run.
This type of pressure can make a company an uncomfortable place to work.
And investor stress tends to spill over to all levels of the organization.
When you choose to receive investments from friends and family, you may also see a change in your relationships.
Especially if your business is struggling.
One of the most important things you can do when talking to your investors is to be honest with your earnings projections.
Each business takes a different amount of time to generate profit.
If you give them a realistic idea of how long you're going to stayrun at a lossas they are less likely to turn up the pressure if you don't make them money on day one.
Explanation of the different types of investors
Now that we've covered hiring an investor, let's look at the different types of investors out there.
As a small business, you should target two main types of investors; venture capitalists and angel investors.
In this section, we cover what these investors are and how they can benefit your business.
We'll also briefly touch on another type of investor you may want to consider.
Forbeshe said once“VCs are the holy grail of investors for fundraising entrepreneurs.
TThey have the most controls, the most power to drive success and gain market share, and the most juice when it comes to gaining more credibility and visibility.'
Venture capitalists are likely to get involved in financing commercial ventures as soon as possible.
This is where they typically see the best ROI.
Venture capitalists are likely to want to take an active role in your company.
Either as a consultant or in a position in the company.
They are usually seasoned professionals and can be a great asset when it comes to making quick profits.
Angel investor * inside
If you are looking for a smaller investment, you should contact Angel Investors.
Like Venture Capitals, they are investors who actively seek investment opportunities.
And they are more likely to take risks with smaller companies and startups than with a bank.
Most of the time, angel investors want to be silent investors, and their company will be a small part of their larger portfolio.
This can be both good and bad for the company in question.These inverters tend not to be very practical.
However, they are quick to cut their losses and move on when a business isn't doing as well as they hoped.
Another Option: Corporate Investors
Many larger companies are currently looking to invest in startups that they believe can add some value to their portfolios.
There are definitely some benefits to joining a larger network of companies.
But the downsides of this tend to outweigh the benefits in the long run.
These companies have a habit of buying smaller companies and shutting them down if they don't perform as expected.
A good example of this is the cosmetics group,estee lauder.
How to attract investors
"Attracting investors" is a broad term that makes many entrepreneurs uncomfortable.
We have good news for you: it's not as complicated as it seems.
This entire process involves making your business as attractive as possible (to the right people) and actively seeking out the things you want.
Here are our top four tips for attracting investors:
1. Know your purpose
It's your job to convince your investors that the world needs your company to exist.
To do this, you need to be clear about the mission (or purpose) of your company.
As a company leader, it is your responsibility to understand and communicate this mission.
You should be able to turn this into an elevator pitch that gets your potential investors to listen more.
2. Understand the power of the brand
When people think of your business, they don't think of the people who work for you and your warehouse full of inventory.
You think about your brand.
Understanding your brand and your voice increases the value of your company in the eyes of investors.
The more time you spend developing your brand and reaping its benefits, the more attractive investors will find your company.
3. Take advantage of every opportunity
Mathematics tells us that the more times we try something, the more likely we are to succeed.
This is a general rule of thumb to use in your investment search.
Take advantage of every opportunity to speak with investors, schedule meetings, and start your business.
This will not only make you statistically more likely to succeed.
But each meeting will teach you something new about your business plan or presentation method.
Learning these lessons will make your next pitch even better.
Remember, you only need one person to say yes.
4. Don't give up
A "no" from one investor is not a "no" from all investors. Rejection is part of the process. Some even see it as a rite of passage.
You have to see rejection for what it is: a minor setback that you can deal with.
When we experience rejection, we like to take the time to read the stories of other people who have been rejected but have done amazing things.
We like to do this to remind ourselves that rejection doesn't have to be the end of this journey.
you don't want to be either12 editorswho turned down Harry Potter.
Or the TV network that told Oprah that she just doesn't have the right TV personality.
When rejections come, dust yourself off and move on.
Things investors look for before investing
We can summarize what investors are looking for in each simple point.
Investors are looking for a return, that is, they want to earn money from their investment in your company.
Unfortunately, this is not always in your control.
So let's look at some concrete things you can use to make your business a more attractive investment opportunity.
Investments are risky. All investors understand this.
However, that does not mean they are willing to blindly invest in companies.
You are looking for attractive investment opportunities with good prospects.
So how can you show potential investors that your company is a smart investment opportunity?
With lots of data.
Investors want to make money, so your job is to collect the data that will show them how to make money from your business.
This can be difficult for new businesses, but through extensive market research, you can show that growth opportunities exist in your potential market.
If your company has been around for a while, investors expect an impressive return over a longer period of time.
One quarter is not enough, they will go for 6 or 7 impressive quarters in a row.
A solid business plan
By the time you've finished this guide, you'll be tired of reading the words "business plan."But there's a reason we can't stop talking about her!
A solid and complete business plan is essential when looking for investments.
A business plan shows your investors that you understand what you are talking about, that you are willing to invest time in your company, that you understand the market you are entering, and much more.
Your business plan is your most important opportunity to show how much of an asset your business will be to your investors.It is your road map to success.
determination and hard work
Investors want to invest in committed entrepreneurs who believe in their company.They want to know that you will also invest in the company.
We are not talking about investing money, although many people invest money in their own businesses.
Investors want to see that you are willing to put time and effort into your business.
They want to know that you won't give up when the going gets tough, which would cause them to lose money.
They want to know that you are determined and hardworking.
Investors are often looking for the fastest way to get a return on their investment.
You are probably talking to more than one company about investment opportunities.
And how close a company is to launch is often an important decision criteria for many investors.
Therefore, we recommend not approaching investors too soon.You really want to get all your ducks lined up before you start looking for financing.
If you are not prepared, you will appear unprofessional and may lead investors to question your commitment to the project.
The uniqueness of your proposal
There are very few ideas that are truly original. So it's part of your job as an entrepreneur to make your company stand out from the rest.
You must present your company in such a way that there are no doubts.
In a way that leaves your investors in no doubt as to what makes you unique or interesting.
The easiest way to achieve this is to spend time developing the ideas on which you will build your business.
Do your market research. get feedback Talk to experts in this field.
Be passionate about your business and you will resonate with your potential investors.
How to write your perfect business plan
We found that many entrepreneurs and aspiring small business owners are reluctant to take the time to create business plans.
It still surprises us a bit, as we believe that creating a business plan is an essential part of starting a business.
We will spend a lot of time in this guide talking about business plans, as they are the most important element in securing financing for your business.
The success of the advice in the rest of this guide depends on a well-crafted business plan.
We believe that all executives should create two types of business plans before applying for funding:
(a) A comprehensive plan that covers everything from market trends, promotional strategies and management structure down to the smallest detail. And (b) a one-page business plan to hand out to potential investors and at business meetings.
Why do you need both?
Well, creating a comprehensive plan will help you explore, dig deeper, and fully realize all areas of your business.
You'll learn a lot this way, and it'll be useful to have on hand when investors want to know more about your plans.
A detailed business plan shows your investors that you are a professional and that you take your investment seriously.
If you can't break down your business plan into a neat one-page document, you're not ready to get started.
You may be having trouble with this because you don't fully understand your plans yet, or because you haven't figured out the key strengths of your idea.
Creating this one page document is an essential part of preparing your presentation.
Being able to come up with a hard-hitting, simplified version of your concept shows your investors that you know what you're doing.
Do I have to do anything before creating my business plan?
Most of your business plan is based on market research.
If you haven't done any market research yet, now is the time to do it.
Don't know what to look for? Start with these topics:
- Who are your competitors?
- How much do you earn?
- How big is your team?
- Where are they based?
- How are your grades?
- What are your weaknesses?
- What can your company learn from this?
- What is the market like for your product or service?
- Is it oversaturated?
- Are there gaps in the market?
- Is there a lot of money there?
- Is there a large market for your product or service?
- What should I include in my overall business plan?
We recommend that you add at least two pages on the following topics:
This will be an introduction to your business plan, covering the objectives of your company.
They should cover what you believe to be the purpose of your business, as well as the current market for your product or service.
You should briefly describe the type of financing you need and mention your expected growth during the first 1-5 years as a business.
overview and objectives
This section should be very pragmatic. You must cover the appearance of your target market.
They cover the number of employees needed.
You should also discuss anything you need to run your business, such as: B. a physical store or equipment to manufacture your products.
Try to cover any import and export you may need to do in the future.
You should talk about what products you will make or what kind of services you will offer.
After that, you need to talk about your business goals. This is where it is good to set profit and market share targets.
You may want to use this section to discuss any area of the business you are considering outsourcing.
products and services
In this section, you'll go into more detail about the exact products and services you plan to offer.
This is where you should talk about what you want to sell, what price you will sell it for, and how much it will cost you.
Talk about how this compares to your competition and how you want to differentiate yourself from them.
This is a good place to mention any areas you'd like to get into in the future.
Mention ideas for new products or services that you would like to offer one day.
In this section, you should focus on two things: your ideal customers and how you plan to grow in the market.
You must have a detailed idea of what your ideal client is like.
You need to talk about how much they earn, their age, their interests, and how you can get them to incorporate your brand into their lifestyle.
When you talk about market growth, you need to talk about the market gaps you want to fill.
They should provide an overview of where the market is currently and how it has performed over the last decade.
You should be able to formulate concrete sales and profit targets and explain how you set them.
Talk about market trends you've noticed and share some of your predictions.
Sales and Marketing
In this section, you will cover two things, your marketing plan and your sales plans.
Both must have at least two pages.
As you think about your marketing plan, remember that it must include much more than just advertising.
The simple act of placing ads makes you look like an amateur to your investors.
Dive deeper into your target market here. Discuss how this informs and informs your pricing strategy.
Then present your marketing plan and show that you have considered your target market.
Your marketing plan should include:
- Ihr Marketing Budget
- what is your brand
- How does your target market match your brand?
- How your competition is marketed
- How would you like to represent your brand?
- How do you plan to advertise: online/events/print?
- How do you want to establish public relations?
- How will you compile promotional literature?
- How do you track the success of your marketing?
- How will you adapt if you don't succeed?
- Will you outsource this process? Or hire internal representatives?
This section should contain very detailed profiles of your current and potential competitors.
You should be able to share the strengths and weaknesses of these companies.
Talk about how they advertise, their business structure, what kind of products or services they sell.
You must also be able to explain how you intend to reduce your market share.
You can divide this list into your primary, secondary, and fringe competitors.
This is another pragmatic section that covers everything you need to run your daily business.
This can include where you will operate it, the number of employees, any equipment, and IT and HR departments.
You must also detail what your day-to-day operations will be like. Talk about how you and your employees will spend your time.
In this section, you should talk about all the legal documents that your business needs to complete.
For example, you may need to purchase international trade licenses, you may also need local licenses.
This is also a good place to talk about your providers.
Discuss who they are, how you build and maintain relationships with them, and why they are the best fit for your business.
An inexperienced management team can scare away investors. Even small start-ups should try to bring experienced members to the team.
In this section, you should introduce your management team and what each member brings to the company.
Discuss their past accomplishments and explain what role they will play on your team.
The goal of this section is to give your investors the feeling that their money is in good hands.
In this section, you lay out all the financial details that your investors need and want to know about your business proposal.
Here you enter information about costs, expected revenues, cash flows andmanagerial salaries.
You must include the following five reports:
What should I include in my one page business plan?
You should consider this document as a CV for your company.
It should be a short document that can guarantee your meetings with investors in less than one page.
The good news is that if you understand your business (which you will when you finish your full annual report), you won't have any trouble putting this document together.
Your one page business plan should include:
- The purpose of your company
- one elevator step
- Who is your ideal client?
- A summary of your marketing plan.
- A summary of your financial plan.
- SWOT analysis (Strengths, Weaknesses, Opportunities and Threats for your business)
- Quarterly forecasts for your three fiscal years
How to make a successful pitch for investors
After creating your business plan and arranging meetings with potential investors, all you have to do is start your business.
This is the part of the process that most people dread.
But relax, once you've drawn up your business plan, most of the heavy lifting has already been done.
They understand your business and what makes it unique. You have all the facts and statistics at your fingertips.
You yourself have already defined the structure of your speech in the business plan.
There are just a few more things you need to do before you start pitching to investors.
Prepare an exit strategy
A strong exit strategy is a great way to show investors that you have thought about your business. Get ready, they will ask you.
Most entrepreneurs start a business with the ultimate goal of being bought out for large sums of money.
You need to start your pitch knowing which companies would be targeting you long term and why.
Prepare a customer acquisition plan.
This is another topic investors like to ask candidates about, as a prospecting plan is a real sign that you've thought it through.inthrough.
Many people forget to take the time to figure out where they are going to get their first customers, how they are going to do it, and how much it will cost the company to find them.
Reaching out to investors has a fully realized customer acquisition plan and you will definitely be impressed.
Prepare and practice your presentation
Meeting potential investors is a big deal. You must treat it with the respect that the situation deserves.
That means going into this meeting well-prepared.
Otherwise, your investors will think that you simply don't care about their company.
You should prepare your presentation in advance. You must have practiced several times and know all your points by heart.
Your presentation should have gone through several drafts before the day of the meeting, and it should have received feedback from multiple people.
How to write a presentation
We've talked to many entrepreneurs who feel like they don't know how to put together a presentation.
Here's a quick guide that covers everything you need to make a successful, easy-to-follow presentation.
Step 1 - Do your research
The good news for you is that once you have created your comprehensive business plan, you will have already done all the necessary research.
If you haven't created your business plan yet, stop. You shouldn't start without a detailed business plan.
Step 2 - Select the best cuts
Review your annual report and identify the most important information it contains.
Check them off or enter the points on a separate document. Do whatever it takes to make these points easier to find as you write your presentation.
Step 3 - Create an outline
You can use the structure of your business plan as an influence for your outline.
Make sure that all the topics in the plan are covered at least briefly.
They should also include an introduction, a closing, and space for investors to ask questions.
Step 4 - Write the presentation
You may want to create a PowerPoint presentation to support your speech.
It is more efficient to edit them at the same time.
As you write, incorporate several techniques that will help keep your audience engaged.
Rhetorical questions and audience participation are great examples of this.
You need to break all of your points down into manageable, actionable parts that you can summarize at the end.
Keep your tone professional and avoid patronizing your audience.
Step 5 - Comments and writing
Try to get as many people as possible to listen to your speech and give you feedback.
Once you have all those comments, it's time to go back to your desktop.
Repeat steps 4 and 5 until you are satisfied with your presentation.
Other ways to get money for your business
If you can't attract an investor through traditional means, that doesn't have to be the end of your journey.
There are many other ways to secure capital for your business. Below we cover four of the most popular ways to do this.
Ask a family member or friend for a fund
Obtaining a loan or investment from friends and family can be one of the most beneficial ways to raise capital for your business.
If you are lucky enough to know someone who has available capital, you can get a loan from that person.
Or you could exchange a portion of your equity in the company for an equity investment.
If you've decided to go this route, don't treat them any differently than you would an investor you don't know.
Providing and signing legal documents with your investors is a great way to show how much you value their investment and that you take it seriously.
These types of deals can create tension between you and your investors, especially when your business starts to lose money.
You should consider this before doing business with your friends and family.
Outside of work, contact businesses or schools in your area
There may be people in your industry who are looking for an opportunity to invest in a new or small business.
These opportunities are very rare, but when you need capital, it may be worth the effort.
Research, as always, is key to this approach. As well as persistence.
Talk to everyone you know in the industry. Attend industry events. Look for people who study in your field.
You never know who is looking for an investment opportunity.
Crowdfunding investment funds
Crowdfunding has a strange stigma in the business world.
A lot of people roll their eyes when you suggest that.
Many business leaders seem to think that crowdfunding is somehow a scam.
We would like to politely disagree.
Thanks to online crowdfunding programs, dozens of new businesses can be started every day.
Kickstarter alone has successfully funded more than198.000Projects and companies from their beginnings.
Apply for a small business loan
Many people turn to investing because they cannot get loans from their banks. However, there are other ways to secure a loan as a small business.
groups likeSmall Business Administration (SBA)Offer loans for small and medium-sized businesses that meet your criteria.
In many situations, even a small amount of capital can make a difference.
This could be a good way to go while waiting for further investment.
You may also want to spend some time researching small business grants.
Many companies struggle to get off the ground because they can't raise capital.
What many business owners don't realize is that bank loans are not the only way to secure money for your business.
Many companies can raise capital from investors.
This may seem like a daunting task, but by following the advice in this guide, you'll be as prepared as possible.
By investing time in creating a rock-solid business plan, offering a compelling sales pitch, and making your business as attractive as possible to investors, your options are endless.
Brent Davis has been writing about financial markets for 10 years and has spent the last five years researching a Fortune 500 company. Brent's investment strategy is to buy quality companies and then let capitalization do its work.
What are the 3 types of investors? ›
The three types of investors in a business are pre-investors, passive investors, and active investors. Pre-investors are those that are not professional investors.What are 5 basic but distinct principles that an investor would follow? ›
- Establish a financial plan Current Section,
- Start saving and investing today.
- Build a diversified portfolio.
- Minimize fees and taxes.
- Protect against significant losses.
- Rebalance your portfolio regularly.
- Ignore the noise.
- Define your investing goals. First off, ask yourself why you are investing in the stock market. ...
- Set yourself up for success. ...
- Look for a wide moat when investing. ...
- Understand basic metrics. ...
- Know which stocks to avoid.
The most common way to repay investors is through dividends. Dividends are payments made to shareholders out of a company's profits. They can be paid out in cash or in shares of stock, and they're typically paid out on a quarterly basis. Another way to repay investors is through share repurchases.What is a fair percentage for an investor? ›
While these elements are essential in getting the business up and running, one needs to have their head on their shoulders to calculate a fair percentage. With most startups, the general rule is to offer approximately 20-25% of your business earnings to an investor.How do I fund a business idea with no money? ›
- Work from home. Starting a business from home with no money is much less expensive than renting an office, warehouse or shop. ...
- Use free or cheap online services. ...
- Get free equipment. ...
- Bank loans. ...
- Government grants and loans. ...
- Bank of Mum and Dad. ...
- Crowdfunding. ...
- Angel investment.
Join groups, ask for referrals, look for venture capitalists online and then ask your networks for referrals. Don't cold call. They probably invest in less than one per cent of the companies they look at so you need to get a foot in the door.How do I reach an investor for a startup? ›
To contact an investor for a meeting, send an email request, as it is quick and easy to forward around an investor firm or angel network. Your email should include an articulate elevator pitch telling the investor who you are and what you do.