Investors are a great resource for funding when it comes to getting your new start-up going. In order to secure willing investors, though, you need to understand the basics of business funding, as well as what investors are looking for in a start-up business.
Five Types of Funding
There are five major funding sources that are available to you:
- Community Banks: Small, locally owned banks that help fund local business ventures by providing business loans.
- Crowdfunding: The collective effort of individuals who network and combine their resources to support entrepreneurs or organizations.
- Venture Capital: Funds provided to early-stage, high-potential, high risk, growth startup companies by venture capitalists or venture capital funds.
- Angle Investors: Wealthy individuals who provide capital for start-up businesses in exchange for ownership equity or convertible debt (a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company, or cash of equal value).
- Small Business Association: The SBA was founded to protect the interests of small businesses, helping Americans start, build, and grow businesses successfully.
What Investors Are Looking For
To get investors interested in your business endeavor you need to be skilled and passionate about your idea. You also need to be knowledgeable about your business idea and its market.
In order to secure funding for your company, you need a well established and professional presence, and a solid business plan.
When reviewing a business plan, investors focus on a few key things, including:
- Your background and business experience, as well as that of your management team.
- What makes your product or service is unique.
- Your target customer demographics, and your knowledge of your marketplace.
- Your pricing model (it must be in line with industry norms).
- Your knowledge of your competitors, and your strategy to differentiate yourself from them.
- Realistic financial projections which help to calculate return on investment (ROI).
Besides your business plan, potential investors also want to know more about your business in general. This includes:
- Your Team: Who are the people who drive your business?
- Valuation: How much would you sell the company for right now if someone made an offer?
- Burn Rate: How fast will you spend the investor’s money?
- Professionalism: Did you prepare a professional, error-free business plan?
- Projections: Can you provide realistic financial projections for the next five years?
Finding Willing Investors
There are five basic steps involved in finding willing investors:
- Write a solid business plan; investors won’t take you seriously without one. Include realistic financial projections and a thorough market analysis.
- Decide what kind of investor you’re looking for. For example, are you looking for a load, or offering an equity opportunity?
- Network within your industry to locate potential investors. Join professional and trade organizations and start attending networking events.
- Review funding websites to connect with potential investors. Though a relatively new source of funding, investment websites help connect entrepreneurs to eager investors.
- Look into venture capital firms. This is a good option if you have proven success in business and a very strong business plan.