Not all small business models are conducive to seeking investors. Typically, technology and medical innovators have the best opportunity for securing funding. These two areas provide the greatest return and are therefore, prized by investors. To qualify for investing, there are certain requirements you must meet and steps to take to improve your position.
Formulate a Business Plan
Without a business plan in place you cannot expect to attract investors. Your business plan offers investors a blueprint that outlines several important matters about your business. That outline includes a description of your business, your mission, a list of your directors and their salaries, financial projections and other relevant details.
A business plan is something that every entrepreneur should have in place before starting his business. You can work with a business consultant or use forms found on the Small Business Administration website to help you craft a business plan.
Determine Your Needs
You should know that investors may require a stake in your business in exchange for giving you capital. Therefore, the greater the investment, the larger the stake and that can mean less money for you down the line.
Carefully consider your needs before seeking any outside investment. If you have a specific need, such as the purchase of equipment, an investor may provide a loan. Understand your needs based on current and future projections, then seek financing accordingly.
Reach Out to Your Field
One of the first places to look for investors are among people that you know and also know you.
This can include family members and friends, or other individuals that know you and may be interested in supporting your work. Keep in mind that loans to people that are close to you can come with emotional strings attached. Both you and your lenders should understand and accept that a personal relationship is hard to put aside where money matters are concerned.
You might also seek investors directly from people within your field. For instance, if you are a technology startup, then you may have contact with similar companies. If you have a proven track record in this field, then you can approach people that you know for support.
Contact Venture Capital Firms
Venture capitalists work with people that have a proven track record or have a business idea that most likely will be very profitable. VCs are apt to show interest in your company if you can demonstrate strong return possibilities over the shortest duration. In exchange for providing capital infusion, the VC will take a stake in your business.
You should know that a VC investment can come with some strings attached, including requiring you to seek an initial public offering (IPO) down the road or be receptive to selling your business to a larger company.
Business owners should tread carefully when seeking investors. You do not want support from somebody who wants to be involved in your day-to-day operation. Beyond taking a seat on your board, you should insist on a hands off relationship.
See Also — 5 Suggested Ways to Invest Your Money