People who are able to come up with a business idea that has potential but lack the financial capital to implement it are often forced to look elsewhere for investors to get the financial backing required to get their business running. The amount of funding required to start the venture determines the finance source most appropriate for you. How much control of your project you are willing to relinquish is also a deciding factor. So the real question is, how to find investors? Let’s try to answer that.
Create a Business Plan
The logical first step for any business project is to develop a detailed and thorough business plan that you can use to show potential investors after you find them. The best way to go about this first step is to get a professional business plan written as it will help you make a good impression and increase your chances of securing funding.
While there is no particular formula that applies to it, business plans usually start with an executive summary that will briefly explain the concept and possible returns from it. This is followed by a lengthier business and product description and a detailed plan describing how the business is going to be managed.
Family and Friends
Many people who are looking for investors often end up going to their friends and family first for investment. This funding is often easier to get, but it may not always be enough or exactly what you need. Most people you’ll be familiar with won’t have millions of dollars to invest in your business, and it might be best to keep such familiar lenders at an arm’s length.
However, if you do end up receiving investment from your friends or family, you should always have a clear agreement in writing so that misunderstandings don’t arise that could affect your relationship with them adversely.
Most entrepreneurs turn to financial institutions such as banks for assistance. However, the problem is that banks are often reluctant to lend money to smaller businesses, especially in times of financial difficulty. A way around this problem is the Small Business Administration, which is a government institution that can help you with that funding you need. It provides qualifying borrowers with a loan guarantee to make them viable for a bank loan.
This is another popular option that involves entrepreneurs seeking out individuals with high net worth who might be interested in investing. These investors often offer funds in exchange for an equity investment in your new venture, provided they find your proposal worthy of the investment.
Venture Capital Companies
You can always approach venture capital companies for seed capital if you have already exhausted other financial sources and are still short of the funding you need. However, the problem is that most venture capital companies aren’t interested in small loans and want more control over your business. If you do decide to reach out to them, be prepared to offer a position on the board and a considerable percentage of the shares.