Author: Brent Davis
For many small businesses taking on investors is an essential process.
Many banks are reluctant to take a risk on start-ups with no parent companies and even established small businesses. This leaves entrepreneurs with very little choice but to look for investors who are willing to back their ideas.
If you’re new to the world of start-ups and investing then the process can seem overwhelming. We won’t sugar coat things, it really can be overwhelming, even for those of us that have gone through it dozens of times. It can also be a time-consuming process and there is no guarantee of success.
So, why do so many people put themselves through this stressful process?
Well, it can have huge rewards – for both the business owner and their investors. Backing the right idea can lead to huge returns on investments. If you have a good idea for a business then it is very likely that someone out there will be willing to take a risk on you.
However, many people are unsuccessful in this process because they approach it in the wrong way. They either pitch to the wrong people, or they pitch way too early in the development process. Doing either of these can lead to instant rejection.
Even if you are successful in finding investors, you can also run into problems. Inexperienced entrepreneurs are often so desperate to find an investor that they take on the wrong type of investor.
Or even worse, they oversell the potential of their business and are left with a lot of angry investors who have lost money on them.
How can this guide help you?
This guide is going to help you streamline the process of finding investors for your business. It will help you to map out exactly what you need to do to be successful in this endeavor.
We will be talking you through the pros and cons of bringing on investors. We will be explaining the different types of investors that your business can take on. We will be looking at how to attract the right investors and what these investors will be looking for.
We will then be covering the most important part of this process – putting together a comprehensive business plan that wins your investors over. We will talk you through how to pitch to investors before covering a few alternative forms of capital acquirement.
Most importantly this is a guide that is designed not just to get you an investor, but to help you find the right investor for your business.
Pros & Cons Of Business Investors
If you’re reading this guide, then you probably have your heart set on finding investors for your small business. We are not planning to try and talk you out of this. However, we want to share some of our experience of working with investors as a small business.
While taking on investors can be the difference between a pipe dream and a fully-fledged small business. We think that entrepreneurs should take the time to educate themselves on some of the downsides of working with investors.
That way you will be completely aware of what you are getting yourself into.
An investor is someone who provides capital in exchange for partial ownership in a business. If the business has any financial struggles later down the line, they can take on new investors or trade ownership for more capital from their current investors.
This type of investment not be confused with or treated as a loan.
The pros of taking on investors
Many of us don’t have the capital that is required to launch a small business. Taking on investors can be a better option for many of us when compared to taking on bank loans.
Having investors backing you can remove a significant amount of financial pressure and give you time to establish your brand. Bank loans require repayment no matter how well the business is doing.
Many small businesses with loans are unable to reach their full potential before running out of capital. Taking loans out can also stifle growth in the long run particularly if your business has high overheads.
Investors take a share of the profits, rather than eating into any form of money made like loan repayments do. Investors also do not charge interest.
Investors take a risk when investing in companies. If you take out a loan you will have to repay it whether your company is successful or not. Investments are not required to be repaid if the business fails.
A silent investor is a name the industry uses to refer to as investors who want to fund the company but who have no interest in getting involved in the day-to-day running of your business. Many businesses thrive with the help of silent investors.
The cons of taking on investors
While this system does have many positives, the process is not always smooth sailing. Taking on investors can have some real downsides, especially for inexperienced business owners.
Many businesses are not able to find silent investors, this can result in the company being put under a lot of pressure to produce growth.