Finding Individual Investors for Your Small Business
“Always target the right investors for your own company.”
Finding investors is always challenging. Finding personal investors in unique. The first step you have to consider is the type of personal investor you want to attract. Are you looking for an active partner or partners in your business? Or do you want to attract investment from a passive investor, an angel investor perhaps, in order to fund your own management of the business?
The second vital step in the process is knowing and understanding how much you need to raise from your investors, as well as the type of investment capital you are seeking. While there is truly a big difference in raising $250,000 versus $10,000,000, fundamentally the process is quite similar. But you absolutely need to know your capital needs, and how you are willing to begin dividing the cap table for the company as investors are lined up.
Once the above questions are answered, there are two paths that need to be pursued to continue moving toward getting the financing you need. One of them, the legal and accounting framework, is outside the scope of this article so we will address it further elsewhere. The other is the actual finding of the investors you need.
In terms of actually finding those investors, let me commend the following: through all the no’s, not right now’s and no responses you will encounter, keep asking, seeking and knocking until you find your way to the right matches and yeses that will fund your future success. Whatever you do, keep up the effort until you succeed. Learn from mistakes you will inevitably make, be flexible, but do not give up. The gold in “the hills” is waiting there for the seeker who keeps trying.
Of course, there are tried and true systems and processes to help you find the right investors. So the next step I recommend is to think carefully about investors who have already placed capital with companies like yours, and also investors who are expressly showing interest in projects like your company is taking on. Whenever you find a prospect, research them carefully using Google searches, LinkedIn, and especially the networks they self-identify with. But you must take care to be directed in your search and not to grasp at dark, blank spaces.
Several years ago, I represented a sports equipment company that was founded by a very well connected CEO with a good network of his own contacts. He also had tremendous intellectual property surrounding his company’s product line. Everything looked great and it looked easy for their initial raise. They brought me in 18 months after they started the process. But they hadn’t raised a dime at that time. In the beginning, they thought of anyone with a check book as a potential equity partner. This meant they spent an inordinate amount of time courting investors who truly were not a match for them because they had little or no interest in their project.
When I came on board, we changed the strategy entirely. We spent a full day looking at their database of contacts, the existing relationships they had, the conversations that had been started and those that had not. In the end, we built a prospect list of the best 15 prospects we could find and a second list of the next 30 prospects with whom we knew we had a chance to obtain funding from. Truthfully, as I learn from my own experiences, I frankly thing these lists are still a bit too long. But where did these prospects come from?
No doubt you’re familiar with the “Friends and Family Round” concept of raising seed or pre-seed capital. To me, this is were it all starts. With each successive round after friends and family, all you should do is build concentric circles going out from the furthest edge you last touched. When you do that, there is always a warm connection to the person, and equally important, there is a warm connection to the investment itself – that is, the investment you’re hoping this person will make. Surely, what I’ve just said makes sense to most startups and small businesses.
But to be fair, the startup graveyard is filled with companies who did a good job with that closest inner circle of investors, had great connections with the next sphere of prospects and never got a dime at that level. So this is where some really savvy investment research and the help of a seasoned investment finder can make or break you in attracting personal investors to your small business.
Remember, always target the right investors for your own company. This may seem very obvious, but it bears repeating – often. If you fail to talk to the right people for your deal, you are wasting time with people who can’t or don’t want to be involved. So back to the question we began with, how do you find investors for your small business?
- What you have to do is consider the following questions and go to the sources that answer them:
- Who has invested before in the type of business you have?
- What are there companies?
- What type of investment vehicle do they use? Is it completely personal? An angel network? Family office? Work through their financial advisor(s)?
- Who are the thought leaders people are following regarding the type of project you’re undertaking?
- Who is investing in the companies they are talking about?
- Who is looking for investment projects like yours? You may be able to glean a great deal of information from angel network resources to help you figure out this part of the equation, but it is not the only resource to use.
All things considered, the volume of work as well as the experience and expertise it takes to do what is necessary to line up the funding you seek, means you are well served to hire a skilled fundraiser for your business. We’re here to help when you need us.
