The Ultimate Guide On Finding Investors For Your Business

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.


As we mentioned, for an investor supporting a company is a risk. One that could really pay off, or one that could lose them a lot of money. Because of this, they tend to want to see faster rewards than a bank would.


And they will often push for short-term growth that may not necessarily benefit the business in the long run.


This kind of pressure can make a business an unpleasant place to work. And the stress caused by the investors tends to trickle down through every level of the company.


Furthermore, if you decide to take investment from friends and family you may notice a change in your relationships. Especially if your business is struggling.


One of the most important things you can do when pitching to your investors is, to be honest with your profit predictions. Every business takes a different amount of time to start turning a profit.


If you give them a realistic idea about how long you will be running at a loss for they are less likely to pile on the pressure when you don’t make them money on Day 1.


Different Types Of Investors Explained



Now that we have talked about what taking on an investor really involves, let’s move on to looking at the different types of investors that are out there.


As a small business, you should be aiming your pitches at two main types of investors; Venture capitalists and Angel Investors. In this section, we are going to cover what these investors are and how they can benefit your business.


We will also briefly talk about another type of investor you may want to consider.


Venture Capitalists

Forbes once said ‘VCs are the holy grail of investors for fundraising entrepreneurs.

They come with the biggest checks, the most power to fuel success and gaining market share, and the most juice when it comes to achieving more credibility and visibility.

Venture capitalists most likely to get involved in funding business ventures as early as possible.


This is where they tend to see the best return on their investment.


Venture capitalists will most likely want to take an active role in your company. Whether it is as a board member, or by taking a job at the company.


They are typically experienced professionals and can be a great asset when it comes to turning a profit quickly.


Angel Investors

If you are looking for a more small-scale investment then you should consider pitching to Angel Investors.


Like Venture Capitals they are investors that are actively looking for investment opportunities.

And they are more likely to take a risk on smaller businesses and start-ups than a bank.

More often than not Angel Investors want to be silent investors, and your business will be a small part of their larger portfolio.


This can be both good and bad for the business involved. These investors tend not to take a very hands-on approach. However, they are quick to cut their losses and move on if a company is not as successful as they had hoped.


Another option – Corporate Investors


Many larger corporations are currently looking to invest in start-ups that they think can add something valuable to the portfolios.


There are definitely some benefits to joining a larger network of companies.


But the downsides of doing this tend to outweigh the positives in the long run.


These companies have a habit of buying up smaller companies and shutting them down if they don’t perform as well as expected.


A prime example of this is the cosmetics conglomerate, Estee Lauder.


How To Attract Investors

‘Attracting Investors’ is a broad term that makes many entrepreneurs sick to their stomach. We have some good news for you – this is not as complicated as it sounds.


All this process involves is making your business as appealing as possible (to the right people) and actively pursuing the things that you want.


Here are our top four tips for attracting investors:


1. Know your purpose

It is your job to convince your investors that the world needs your business to exist. To do that you need to be clear on your company’s mission (or purpose).


As the head of the company, it is your responsibility to understand and communicate this mission. You should be able to turn it into an elevator pitch that will leave your potential investors wanting to hear more.

2. Understand the power of branding

When people think of your business, they are not thinking about the people who work for you and your warehouse full of stock. They are thinking about your brand.

Understanding your brand and its voice adds value to your company in the eyes of investors. The more time you spend developing your brand and capitalizing on its benefits the more attractive investors will find your business.


3. Take every opportunity

Mathematics tells us that the more times we try something, the more likely we are to succeed at it.


This is a rule that you should apply to your hunt for investment. Take every opportunity to speak to investors, set up meetings, and pitch your business. Not only will it make you statistically more likely to succeed.


But every meeting will teach you something new about your business plan or your pitching 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 isn’t a ‘no’ from every investor. Rejection is part of the process. Some even see it as a rite of passage. You should see rejection for what it is – a small setback that you will work past.


When we’ve experienced rejection, we like to take the time to read the stories of other people who have been rejected but have gone on to do amazing things. We like to do this to remind ourselves that rejection doesn’t have to be the end of this journey.


You wouldn’t want to be any of the 12 Publishing Houses that rejected Harry Potter. Or the TV network that told Oprah she just didn’t have the right personality for television.


When the rejections come, dust yourself off and keep moving forward.


Things Investors Look For Before Investing


We can boil down what investors are looking for into one every simple point. Investors are looking for a return on their investment – i.e. they want to make money from their investment in your company.


Unfortunately, that’s not something that is always in your control. So let’s look at some elements that you can tangibly harness to make your business a more attractive investment opportunity.


Data

Investment is a risk. All investors understand this.


What that doesn’t mean however is that they are willing to invest blindly into companies.


They are looking for attractive investment opportunities with good prospects.

So, how can you show potential investments that your business is a smart investment opportunity?


With heap loads of data.


Investors want to make money, so it is your job to put together the data that will show them how they can make money with your company. This can be difficult for start-ups, but through extensive market research, you will be able to prove there are opportunities for growth in your potential market.


If your business has been around for a little while then the investors will be expecting to see an impressive performance for an extended period. One quarter isn’t enough, they’ll be looking for 6 or 7 impressive quarters consecutively.

A Solid Business Plan

By the time you finish this guide, you will be sick of reading the words ‘business plan.’ But there is a reason why we won’t stop talking about them!


Having a solid and comprehensive business plan is essential when seeking investment.

A business plan shows your investors that you understand what you are talking about, that you are willing to invest time into your business, that you understand the market that you are entering, and much more.


Your business plan is your main opportunity to show how much of an asset your company will be to its investors. It is your roadmap to success.

Determination And Hard Work

Investors want to invest in entrepreneurs who are committed to and believe in their businesses. They want to know that you are going to invest in the company too.

We don’t mean investing money, although many people do invest money into their own companies.


Investors want to see that you are willing to invest your time and effort into your business.

They want to know that you won’t give up when things get tough, which would result in them losing their money.


They want to know that you are determined and hard-working.


Business-readiness

Investors are often looking for the quickest way to see a return on their investment.

They are most likely talking to more than one company about investment opportunities.

And how close a business is to launch is often a significant deciding factor for many investors.

This is why we recommend avoiding pitching to investors too early. You really do want to have all your ducks in a row before you start looking for funding.


Not being prepared will make you look unprofessional and could have the investors questioning your commitment to the project.

The uniqueness of your proposal

There are very few ideas out there that are truly original. So, part of your job as an entrepreneur is to set your business apart from the rest. You need to present your company in a way that leaves no room for doubt.


In a way that leaves your investors with no questions about what makes you unique or exciting.


The easiest way to achieve this is to invest time into developing the ideas that you will build your business on. Do your market research. Get feedback. Talk to experts in the field. Be passionate about your business and that will resonate with your potential investors.


How To Write Your Perfect Business Plan



We find that many entrepreneurs and future small business owners are reluctant to put in the time to create business plans. We still find this a little shock, as we think putting together a business plan is an essential part of starting a business.


We are going to spend a lot of time talking about Business Plans in this guide because they are the most important element of securing finance for your business. The success of the advice in the rest of this guide relies on a well-crafted business plan.


We believe that all business leaders should be producing two types of business plans before applying for funding:


(a) a comprehensive plan that covers everything from market trends, advertising strategies, and management structure in great detail. And (b) a one-page business plan that they can hand out to potential investors and at business meetings.


Why do you need both?

Well, creating a comprehensive plan will help you to explore, flesh out, and fully realize all areas of your business. You’ll learn a lot whilst doing this and it will be useful to have on hand when you investors want to know more about your plans.


Having a detailed business plan shows your investors that you are a professional and that you are going to take their investment seriously.


If you can’t boil your business plan down to a snappy one-page document, then you’re not ready to pitch. You may be struggling to do this because you don’t fully understand your plans yet, or because you haven’t worked out the main strengths of your idea.


Creating this one-page document is an essential part of your preparation for a pitch. When you are able to present a punchy, streamlined version of your concept it shows your investors that you know what you’re doing.

Is there anything I need to do before creating my business plan?

The majority of your business plan will be based on market research. If you haven’t done any market research yet, then now is the time to do it.


Not sure what to research? Start with these topics:

  • Who are your competitors?

  • How much do they make?

  • How big is their staff?

  • Where are they based?

  • What are their reviews like?

  • What are their weaknesses?

  • What can your company learn from them?

  • What is the market like for your product or service?

  • Is it oversaturated?

  • Are there any gaps in the market?

  • Is there a lot of money in it?

  • Is there a big market for your product or service?

  • What should I include in my comprehensive business plan?

We recommend you include at least two pages on the following:


Executive Summary

This will be an introduction to your business plan covering what the goals of your company are. You should cover what you feel the purpose of your company is as well as what the market for your product or service is currently like.


You should briefly breakdown the types of funding you require, as well as mentioning your predicted growth over the first 1-5 years as a company.


Overview and Objectives

This section will need to be quite pragmatic. You should cover what your target market will look like. You’ll cover the number of staff you will require. You should also discuss anything you will need to run your business – like a physical store or equipment to make your products.

Try to cover any imports and exports you will need to do in the future. You should talk about what products you will be making or the type of service you will be providing.


After that, you should talk about your business’ goals. Here it is good to set out profit and market share goals. You may want to talk about any areas of the business you are looking to outsource in this section.


Products and Services

In this section, you will go into more detail about the exact products and services you are planning to provide.


Here you should talk about what you are planning to sell, the price at which you are going to sell it, as well as how much it will cost you to make it. Talk about how this compares to your competition and how you plan to distinguish yourself from them.

This is a good place to mention any areas you would like to move into in the future. Mention any new product ideas or services you hope to one day provide.


Market Opportunities

In this section, you will want to focus on two things, your ideal customers and how you intend to grow in the market.

You should have a detailed idea about what your ideal customer looks like. You should talk about how much they earn, their age, their interests, how you can get them to incorporate your brand into their lifestyle.


When talking about market growth you should talk about the gaps in the market you are planning to fill. You should give an overview of where the market is now and how it has been over the past decade.


You should express concrete sales and profit goals and be able to explain how you settled on them. Talk about market trends you have noticed and share some of your predictions.


Sales and Marketing

In this section, you are going to cover two things, your marketing plan, and your sales plans. Both of these should be at least two pages long. When thinking about your marketing plan remember that it should involve much more than just advertising.


Just including advertising will make you look like an amateur to your investors.

Here, go more in-depth about your target market. Discuss how this relates to and has informed your pricing strategy. Then present your marketing plan, showing that you have taken into account your target market.


Your marketing plan should cover:

  • Your marketing budget

  • What your brand is

  • How does your target market fit into your brand?

  • How your competition markets itself

  • How you plan to portray your brand

  • How you plan to advertise – online/events/in print?

  • How you plan to build public relations

  • How you will put together promotional literature

  • How you will track the success of your marketing

  • How you will adapt if it is not successful

  • Will you outsource this process? Or take on in-house representatives?


Competitive Analysis

This section should include very detailed profiles of your current and possible 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 should also be able to explain how you plan to reduce their share of the market.

You can break this list down into your primary, secondary, and fringe competitors.


Operations

This will be another pragmatic section where you cover everything you will need to run your business on a day-to-day basis. This can include where you will run it from, numbers of staff, any equipment, as well as IT and HR departments.


You should also go into detail about how your day-to-day operations will look like. Talk about how you and your employees will spend their time.


In this section, you should talk about any legal documents your company will have to fill in. For example, there may be international trading permits to acquire, you may need local licenses as well.


Here is also a good place to talk about your suppliers. Discuss who they are, how you will build and maintain relationships with them, and why they are the best fit for your business.

Management Team

An inexperienced management team can put investors off. Even small start-up businesses should try and bring on experienced team members.


In this section, you should introduce your management team and show what each member brings to the company. Talk about their successes in the past, and explain what their role will be within your team.


The aim of this section is to make your investors feel like their money will be in good hands.


Financial Analysis

In this section, you are going to layout every financial detail that your investors will need and want to know about your business proposal.