Finding an investor and finding capital are two entirely different things.
Securing capital for your startup can come from many sources (e.g., personal savings, credit cards, traditional bank loans, crowdfunding, your parents, etc.).
Finding an investor is much more. It’s about finding someone who believes in you. In fact, they believe in your vision so much that they are willing to write you a check and help you achieve your goals.
Ideas Alone Won’t Fund Themselves
Acquiring funding is an essential part of starting a business. Your ideas may be as good as gold, but without the cash to back them up, you will quickly see your organization crumble. As an entrepreneur, your cash flow will likely be one of your top concerns. You are not alone. “Business owners have a lot on their plates, and keeping their businesses in the black is one of the biggest (OPEN Forum).”
An investor can be a lifeline for your business. But the best qualities of an investors are not their deep pockets. If you do not choose the right investors to work with, you might quickly see the spark of your enterprise extinguished even if you are cash rich.
Choosing an investor is hard when you don’t know where to start. Follow these five tips to help you find the investor who will fan the flame created by your entrepreneurial spark.
1. Understand your options.
Before you start pitching your ideas to investors, you need to understand the investment options that you have.
Private equity investments are investments made by private individuals. These investments may include private investments, project funding or the complete purchase of a company.
Venture capitalists are investors that target businesses and sectors that show promise of high growth. A VC will want to see empirical evidence that your business is about to explode. In addition to this, a venture capitalist firm will usually be interested in startups that are also looking for the expertise and assistance that these firms can supply.
Finally, you can seek out an angel investor. Angel investors are people who have a lot of personal wealth and are interested in investing in startup companies in their areas of interest. They offer many of the same opportunities as a venture capitalist, but in smaller increments. They often have expertise but do not always have the same resources a VC firm can offer.
2. Know where to look.
Knowing what kind of funding you need is the first step, but you also need to know where to find it. There is no point in spending time pitching your business to investors who are not interested in your market.
3. Decipher the qualities of an ideal investor.
The right investor will not just cut you a check. They also support you in areas that fall outside of your core capabilities. To know whether an investor is right for you, you need to figure out what you want from an investor.
If you’re looking for a mentor-type individual, you will be looking for a hands-on investor who is interested in participating in your business. You will want to avoid investors who are too busy to do more than look at a quarterly report.
4. Be willing to compromise.
It can be hard to allow someone access to the intimate details of your business. But if you want to find the right investor, you need to build a trusting relationship that is capable of compromise.
It is rare that you will meet an investor who simply wants to give you money and do nothing else. Most investors will have a laundry list of things for you to do. You have to be careful not to let a good investor slip away because you’re unwilling to make changes.
5. Make yourself and your business desirable.
Making your business attractive to investors is not just about your strategy and your product. These two things are a big part of drawing investors, but your product will rarely seal the deal on its own.
You need to be a clear and honest communicator to attract investors. They want to know that you won’t hide from them should your business have a bad day. They also want to see that you represent your company fairly.
A good investor is not just interested in the best-case scenario. They want to know even the most unflattering and riskiest possibilities of investing in you and your business.
Entrepreneurs and investors have one thing in common. They both want to get the most for their money. The next time you’re looking for money, make sure you are looking for value, too. You can get both when you find the right investor.
This article has been edited and condensed.
Kenny Kline is the owner of JAKK Solutions, a NYC-based SEO company. He is a digital marketing expert, MBA, and serial entrepreneurial. When not in front of his computer, he can be found beekeeping, knitting, and being as Brooklyn as humanly possible. Connect with @thisbekenny on Twitter.