Getting a small business off the ground is difficult work, but it is made much easier with the help of investors – people or businesses who believe in the product or service enough to support its growth. There are many ways to go about seeking investors for a small business, and new businesses should explore them all, as some avenues may come up on dead ends.
Here are the ten ways on how to get investors for a small business:
1. Angel investors
An angel investor is someone who personally contributes to funding a small business’ start-up or expansion costs. The investor receives equity in the company in return for their investment, which does mean that the owner loses some control over the decisions they make for their business.
That said, the investor does have a stake in the game, so it’s not like they would purposely encourage decisions that would be harmful to the business.
2. Friends and family
Asking you friends and family is a good way on how to get investors for a small business. Sometimes all it takes is a little help from family and/or friends who have the means to lend a financial hand.
These lenders may be a little more forgiving when it comes to issues with repayment. They can also act as angel investors by taking equity in the company in return for their investment.
3. Venture capitalists
Venture capitalists are private equity investors. This means that, much like angel investors, they seek equity in the company in return for their investment. The difference between angel investors and venture capitalists, however, is that venture capitalists don’t typically use their own money.
Instead, they use money that is pooled from other sources like pension funds, larger companies, or investment companies. Venture capitalists are interested in business investment opportunities that are already established and show growth potential.
There are two main types of crowdfunding:
In this method, people contribute small amounts of money but do not expect to receive it back. However, since there are a lot of investors, all those small amounts add up to the goal amount that the business requires.
This method is similar to donation-based in that the investors do not expect their money back. However, they do receive something in return for their donation. For instance, the business may offer certain products to their investors for “free” based on how much they donate. This can actually be a doubly beneficial source of funding for new businesses.
First, it allows them to acquire the necessary funds to develop, launch, or expand their business. Second, the business sends out product to their investors which contributes to brand recognition, feedback, and loyal customers who will actually purchase more products in the future.
5. Peer-to-peer lending
Peer-to-peer lending is usually done through one main marketplace that helps to locate lenders and borrowers. In this case, the financing would be a loan requiring repayment, but peer-to-peer lending is very versatile in terms of repayment, loan amount, and interest rate.
This type of lending also may allow small businesses to acquire funding from many investors. The website they choose to work through will manage most of the back-end logistics like repayment, which means the business doesn’t have to worry about keeping track of each individual investor or make multiple payments.
6. Startup incubators
Startup incubators are designed to help businesses to grow, stabilize and explore their opportunities with their business. The incubator typically does not take a share in the business in return for the investment. An incubator’s primary concern is to ensure that business owners have advice, training, and support needed to really thrive.
7. Startup accelerators
These programs are designed to get start-ups rolling. They contribute funding for the business’ start-up costs, while simultaneously offering extensive mentoring and training. These programs not only help new business owners with their start up costs, but they also impart important knowledge and skills that can help guarantee the start-up’s success. Startup accelerators do take a share in the business in return for their investment.
Banks are interested in helping small businesses. For this reason, there are many loans and programs targeted at small businesses that can help them get off the ground. Such loans may have lower interest rates, longer repayment plans, more leniency in repayment, or a deferred payment timeline. Work with your local financial institution to see what possibilities exist for you and your small business.
9. Government agencies and grants
The government is interested in stimulating local economy, so there are many opportunities for small businesses to thrive with grants and programs. All it takes is a little research.
There is no better way to find investors than to network your way into their hearts (and their pockets). Business owners should attend any industry-relevant networking event they can and talk to people. In addition, others in the industry may have a lead on someone who would be interested in investing in a business.