June 28, 2023 By Max Freedman

Growing your business may be simultaneously exciting and stressful, and the biggest challenge might be financing your growth. Capital is generally your bread and butter when it’s time to move from ideas to action, and there are many ways to get it. Finding investors, though, is likely your best bet. Below are  tips on how to get investors for your business.

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5 strategies for getting investors for your small business

You may typically use several methods to find investors for your growing business. Each way of getting investors to your business has its unique pros and cons that are essential to consider when choosing the right one. 

1. Talk to your friends and family about your business’s needs

Borrowing money from your loved ones is one cost-effective way to raise funds for your business, but it often has its drawbacks. Wrapping your friends and family’s finances up in your personal project may damage the relationship if the business fails. Furthermore, while there are fewer hoops to jump through, you’ll likely get less money than if you went to a bank

It’s generally important that you treat friends and family money as an investment and not a handout. Even if there’s less money involved, any investment in a growing business is a huge financial risk. If you’re confident in your product or service, pitching it to your loved ones may help them feel confident in it too.

2. Get venture capital from investors

Venture capitalists are investors who offer large amounts of capital to businesses with a high chance of profitability. They often ask for company shares in exchange for their investment, giving them a say in the company’s future. To get funding from a venture capitalist, you generally have to:

  • Find one. The first step to working with venture capitalists is finding a suitable investor. You may search for an individual financer or go through a venture capital firm, and it’s essential to do your research to ensure they’re reputable. 
  • Share your business plan. When you find an investor you think is a good fit, they’ll typically want to see your business plan. This document outlines how you’ll make your company a success.  If your plan aligns with the investor's goals, you may generally move on to the next step.
  • Go through due diligence review. A due diligence review is when an investor reviews your company’s structure from top to bottom to determine its value. Usually, they’ll look at things like your financial statements, management team, and market.
  • Work out the terms. If the investor agrees to invest, you’ll meet with them to negotiate the terms and conditions that come with the incoming funds.
  • Investment. Once the terms of your investment are settled, the investor will make funds available to you as they become involved with your company. Typically, you won’t receive these funds all at once. Instead, the investor will provide them in rounds, with more money becoming typically becoming available as the company grows. 

3. Crowdfund your business 

Crowdfunding is a more recent method of building capital where you provide a preview of your product online and let the public fund its development. There are several types of crowdfunding you may choose from, such as:

  • Equity. Equity crowdfunding refers to investors exchanging their funds for a certain amount of company shares. The people who crowdfund your business typically won’t ever have enough shares to influence the company. That said, the more shares they have, the more of your profits they typically get.
  • Peer-to-Peer lending. Peer-to-peer crowdfunding is when potential investors apply to a specialized program that matches them with businesses or individuals needing capital.
  • Donation-based. Donations are a form of crowdfunding where people donate a small amount of money to a project without expecting repayment.
  • Reward-based. Reward crowdfunding is similar to donation-based crowdfunding, where the public donates in small amounts. However, the project they’re contributing to typically offers investors a reward if they reach a certain goal. 

Many websites have been launched in recent years that help businesses gauge the popularity of certain ideas and collect funds from the public to create them. As mentioned above, there are several types of crowdfunding that websites like Kickstarter®, Indiegogo®, AngelList®, and more cater to. It’s simply a matter of finding the platform that works best for your company

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4. Get a small business loan

Many investors are more likely to give their money to businesses that already have some measure of success. However, getting your startup business to a desirable size and profitability may be challenging without some financial assistance. That’s why it may be helpful to apply for a small business loan. The two most commonly sought-after small business loans are:

  • SBA 7(a) loans. The Small Business Administration provides several types of loans to small business owners looking for working capital. SBA 7(a) loans are often the most sought after because of their high loan amounts. These amounts range from $30,000 to $350,000 for working capital and debt refinancing loans. For commercial real estate loans, that cap increases to $5 million. SBA 7(a) loans also have low interest rates of 6.75% to 7.75%. Their repayment terms are long too – 10 years for working capital and debt refinancing loans, and 25 years for commercial real estate loans.
  • Bank term loans. Banks also offer loans outside the SBA program, and each loan product has unique advantages and disadvantages depending on the lender. Because these loans lack SBA backing, their terms are often slightly less favorable than with SBA 7(a) loans. However, their loan amounts of $30,000 to $500,000 are generally on par with SBA 7(a) loans and still favorable for small business owners.

5. Consider angel investors 

Much like venture capitalists, angel investors are wealthy individuals who support a company with their personal funds in return for a certain number of shares. They are often people with a wealth of experience in your business’s market – and ample knowledge to help drive it in the right direction. One important distinction is that angel investors typically won’t ask for their money back if your business fails, while venture capitalists almost always do.

Typically, angel investors are highly particular about the companies they put their money in. You should do some research before approaching an investor to determine whether they’d be interested in your business. 

What do investors look for?

While there are many ways to find investors, knowing where they are doesn’t mean they’ll automatically support your business. It’s important to present your company in the best way possible, and knowing what investors typically look for in their investments may help with that. Here’s what investors may ask you to share.

  • Idea or product. Investors want businesses with ideas or products that the public will buy. It doesn’t necessarily have to be brand new, but there should be something that sets you apart from your competitors.
  • Business plan. A business plan tells investors that you know where your company’s going and how you’ll get there. Financiers prefer long-term rewards for their investments, so having goals for profitability in the future may help you obtain their funding.
  • Management team. It generally reassures investors when your company has a competent management team at the helm. Make sure to get your best people into these positions.
  • Financial data. Financial data showing positive trends for your company may signal that putting money into your business will pay off in the long term. This data generally involves reports on your profits and expenses. Balance sheets and income statements are common examples.
  • Success metrics. Success metrics refer to data beyond profits that reflects positive business performance. These metrics typically depend on the type of company you run. They may include (but aren’t limited to) customer retention, email conversion rate, and web traffic.

Invest in your business future with SmartBiz

Getting an investor interested in your business may be challenging, but it’s not impossible. A small business loan is an accessible option, and SmartBiz® may be able to help you find the loan that best fits your financial needs. You can use SmartBiz to search local banks and see which ones have the most favorable loan terms. Check now whether you pre-qualify* for the investment your business needs.

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