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How to Find Small Business Investors | Merchant Advisors

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Title: How to Find Small Business Investors | Merchant Advisors


1
HOW TO FIND SMALL BUSINESS INVESTORS
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2
Starting a new business and made it successful
requires a lot of time, strategy, discipline and
efforts beyond business financing. There is a
variety of small business loan options for
businesses to grow, and its certainly
challenging to secure the money you need to hit
the spot without a significant financial
credentials. Most small business dont want to
assume debt initially, and would preferably give
up equity to investorsa process called equity
financing. If youre thinking about this option,
you possibly craving to discover how to find
small business investors.
Fortunately, youll find a multitude of investors
willing to invest in worthy startup businesses.
According to American Angel report, 63 of angel
investors live outside Silicon Valley, New York
or Boston, the traditional homes of venture
capital.
There might be a time when you think of
bootstrapping or self-financing your startup, or
are just inquisitive about how to find investors
for your business. Here are few tips to help you
get started on how to find the investors and how
to connect with them effectively.
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Small business investors can be an individual or
a group of people looking for opportunities to
finance startups. In comparison with venture
capital firms, small business investors usually
offer smaller loan amountsthough sometimes a bit
higher amounts in certain conditions.
Small business investors search for companies
with growth potential, after all, they are
investing their money and are looking for
returns, requiring something in exchange which is
generally equity. While investing money into
early-stage startups, investors are making what
will likely be long-years bet. However, they
typically are anticipating for a gateway of some
kind so they can make some money, as well.
Besides funding, startups can also obtain
informed perspectives from most investors, since
many are former entrepreneurs. While securing
funding from small business investors, there are
a few important things you need to understand
first
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Angel Investors vs. Seed Money
While searching for small business investors, you
might have come across this question are you
looking for a single small business investor, or
raising seed money to fund their new enterprise?
Most startups prefer to secure funding from a
single angel investor, but do without raising
seed money. This will help you develop close
relationship with investors, while retaining a
substantial equity in your business. Angel
investors are less interested in taking board
seats. In addition, raising seed money is a lot
of work. Having said that, many businesses will
raise seed money of different sizes in which
angel investors will contribute. You need to
ascertain where you fall, and in any case, youre
hoping to likely engage with seed money beside
angel investors.
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Accredited investors are financially savvy. In
order to be an accredited investor, it has to
meet the U.S. Securities and Exchange Commission
(SEC) requirements to participate in extensive
investment transactions. The individual investor
must earns more than 200,000 annually or a joint
annual income of 300,000 for the last two years,
or have a net worth exceeding 1 million, either
individually or jointly with his or her spouse,
or serves as a partner, executive officer,
director, or a similar role for the issuer of a
security being offered. On the contrary, a
non-accredited investor is one who doesnt meet
the SEC to become an accredited investor.
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While searching for investors, youre familiar
with the fact that you have to give up equity. In
equity, both parties agree to an amount for the
value of the company called the pre-money
valuation. After agreeing to an amount, the next
step is to settle the investment money needed to
achieve the next set of company goals (called
the investment round or the round).
Equity vs. Convertible Note vs. SAFE Note
A convertible note (con note if youre cool) is
simpler than a priced equity round mainly because
it adjourns the need to settle a pre-money
valuation of the company prior to investment.
Startups can get funding without the need to
repay the interest and principal, while investor
get equity for the unsettled loan amount based on
a future business valuation.
SAFE (Simple Agreement for Future Equity) is an
alternative to the convertible note, which isnt
a debt, but it does convert into equity. It is
much simpler and shorter than most convertible
notes.
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You can find funding from a single investor.
However, you will find many who choose to work in
groups or associations.
There are many complexities involved in a group
angel investing, so you should know when youre
looking to find investors from a group. The
important thing is that you can find small
business investors from an individual, or a group
that is generally govern by a lead investor.
This makes investing inexpensive and less risky,
and its less time-consuming too when one person
in a group exercise the draining due diligence
for all.
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8
There are many proven ways to find small business
investors. However, finding an appropriate
investment for your small business can takes
time, effort, strategy, and proficiency. Once
your business is ready, these ways can surely
help you find investors to get you started
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9
Credible
Endorsements
Getting trusted endorsements from other
entrepreneurs can serve as a fuel for your
investment search. Investors favor introductions
from other businesses who they respect and have
worked with. Try to get in touch with your local
community or social network and introduce your
business idea with them. Someone might have a
connection with investor or group of investors.
Definitely, your financials portray about your
businessbut a warn introduction is more
effective with direct connection.
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Strategic
Networking
You can also connect with channels like industry
trade organizations, local chamber of commerce,
or a local Small Business Development Center
(SBDC).
Start networking with people around and in
groups. Seep through your network groups for
potential investors or look for networks you can
easily become a part. The best start is to
explore your alumni network for known investors,
groups of angel investors, or acquaintances to
others who can offer you guidance and support on
how to find investors.
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11
Online Investment
Platforms
Dont limit your search to local. Go as broad as
possible. Many online platforms provide
accredited investors the opportunity to assist
new businesses, making access to funding easier.
The best online investment platforms include
Fidelity Investments, Ally Invest, Angel
Investment Network, AngelList, and TD Ameritrade.
Subject to the location you select to seek your
connection, you might be working with an
individual, or a syndicate, plus how the platform
is structured. You can also leverage social media
platforms to announce that youre looking for
small business investors.
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12
Industry Conferences
and Summits
If youre unable to network with others to dont
have onethen grow it. Many startups were able to
secure funding through industry conferences and
summits. The benefit of such events is that you
can build your network with investors and can
nurture your relationships with them.
Additionally, try to learn about investors as to
what type of businesses theyre interested in, at
what stage, how much income they want to see, and
any additional factors that make them excited.
Leveraging such events means gaining exposure to
experts innovators, professional networking,
discovery of new trends and tools, knowledge
sharing and most importantly, investment for your
small business.
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13
You know even long shot like cold reach can be a
difference-maker, as long as you know whom youre
reaching out to. The key is to stay professional
in your pitch and personal especially for
first-time entrepreneurs.
There is a possibility that you dont know any
investors directly, but that doesnt necessarily
mean you cant find ways to make personal
connections back to investors. Crafting the
perfect email pitch and taking baby steps toward
contacting investors can help you reach out,
gather feedback, refine approach, then contact
more investors successfully. The better your
pitch as you go, the more chances youll have in
scoring meetings.
You can also connect with investors via email,
LinkedIn, and over the phone. Keep in mind that
youre not going to close every single investor
you cold outreach. The key here is to do your
research early to ensure youre only reaching out
to investors who are most likely to be interested
in what youre doing, and then focus on setting
up that conversation.
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A close friend or family member will likely have
your best interests and want you to succeed.
While adding a new member into the business,
ensure you sign an investor agreement and legally
formalize the process, so theres no dispute or
confusion in the future.
You might be unwilling to ask for financial help
from your friends or family, but having them
invest their money into your business idea might
help. Having someone you know better as a
shareholder in your business can be comforting
and a great option for you.
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Many educational institutions are developing
incubators and accelerators for students and
alumni, allowing startups to secure funding
within the educational system. Interact with your
local alumni to look for the type of business
they have any programs for or want to invest the
money. Although its a new practice, but reaching
out to them and asking for support might help you
and your business.
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16
Develop a business plan and financial model
Do your homework
Follow a strategic planning process
Before you start connecting to find investors,
make sure you have a perfect pitch. You should be
prepared beforehand in order to raise money for
your business. Here are few things you need to
have in hand before you make a move
Know your passion, energize your story that
epitomizes the problem your idea solves
Draft a set of key milestones
Create an investor presentation and pitch deck
Craft and practice your elevator pitch
Draft an executive summary
Have a Q/A session with a hostile audience
Investors want to see a trajectory for growth.
The whole process isnt instant and involves due
diligence on investors part, and endurance on
yours.
Unique business proposition
Understanding of your financials
Future vision of your company
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17
LINE
THE BOTTOM
Remember, while evaluate the means for financing
your business, not every business idea needs
investment. Many startups are able to use their
revenue to secure funding. If youve the
financials, shrewdness, and a network, you might
need not to find investors. Also, there are
plenty of business financing options for startup
businesses from business credit cards to small
business loans to help you get started in the
beginning.
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