Startups often run into trouble when facing the process of finding and securing potential investors for their business. Investing provides millions of businesses with much needed capital, and of course hopefully a way to increase sales, allowing for further growth and profitability. We have outlined below a few points to take into account in regards to dealing with investors and seeking the right investment for you.
UNDERSTAND THE DIFFERENCE BETWEEN PRIVATE EQUITY, VENTURE CAPITAL, AND ANGEL INVESTING
The term venture capital is often used in conversation to mean money invested by a third-party in high-growth start-ups. However, there are several types of investors with slightly different approaches. The SBA Venture Capital Guide provides a solid overview of the various investment options that are open to high-growth startups. Here’s a brief summary of what you need to know:
PRIVATE EQUITY (PE)
- PE covers a number of investment types that are usually made by private individuals or privately-owned institutions (usually a private equity firm). The money can be used to purchase a company, fund a project, or make a straight-out private investment.
VENTURE CAPITAL (VC)
- This is also a form of private equity, but is managed differently and is usually designed to fund startup companies that have the potential for high growth (very popular with technology companies). Venture capitalists, not only provide money, but also business planning expertise and assistance to help startups succeed in its industry.
- Angel investors are high-net worth individual investors (usually former entrepreneurs) who seek high returns through private investments in startup companies. They provide similar startup financing as venture capitalists, butusually in smaller amounts.
THINK OUTSIDE OF THE BOX
Investors when reviewing potential funding opportunities see similar business plans and ideas constantly so, when approaching an investor insure your business plan is easy to understand and equally scalable.
TRY AND TRY AND TRY AGAIN
Not everyone is going to say yes, whether it’s your first or fiftieth time pitching to an investor it’s important to not get discouraged. Finding investors is not easy, it will certainly take some time, don’t be discouraged if your idea gets rejected once or twice. Many universities also have strong entrepreneurial programs, talk to faculty or staff within the department about the resources they can offer you, they generally have good connections with investors.
KNOW WHAT YOU WANT
Decide on the type of investor you want to find.
- For example, you may want to find an investor who will loan your small business money for a specific purpose, such as purchasing new equipment.
- You may prefer an equity investor who puts money into your business in exchange for part ownership and a share of the profits if you make money.
- While these are two common investment structures, you may also find investors willing to invest in other ways. Tailor your discussion of repayment in the business plan to reflect the type of investor you’re seeking.
Know what you want to accomplish and make it clear to potential investors. Once you’ve finally made some connections to investors who likely understand the kind of company you’re trying to build, you then need to whittle it down to those who share your vision of what’s possible.