Overview – 6 Ways You Can Find Private Investors
When it comes to business, having a great idea is only one piece of the puzzle.
The real challenge lies in getting the business off the ground, or taking it to the next level.
Doing this requires resources, expertise, networking—the kind of thing private investors can provide.
But finding the right private investors—let alone convincing them to invest their time and money in your business—can be a daunting prospect.
Where do you look?
How do you pitch?
What questions should you be prepared to answer?
People who successfully secure private investors have considered these questions carefully, and developed a clear strategy to get the capital they need to start or grow their business.
This article covers the basics of what private investors are, and gives you 6 ways to find them.
What Are Private Investors?
Private investors are businesses, individuals, or groups of individuals who invest directly in businesses in exchange for part-ownership, convertible debt, royalties, or other forms of financial compensation.
Private investors offer funding, expertise, and all-important connections to startup and young businesses.
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Experienced private investors will offer terms that correspond to the level of risk they perceive.
An example might be a private investors who invests $200,000 in a struggling software startup in exchange for 51% stake in the company.
The only way the investor could justify making such a large investment was to become the majority shareholder of the company, which now stands to benefit from his or her guidance and connections.
A strong company with good profit-margins will be able to attract private investors at more favorable terms.
For example, a $200,000 investment for only 10% of the company.
Private investors come in many forms.
Some may want more involvement in the strategy of the business, and some may want less—but all private investors have in interest in making your business profitable.
The trick is finding the financial terms you want from investors you’ll be happy to work with.
So where are these investors, and how can you get them to take notice of your business?
Of the six following steps, the first three involve preparation.
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1. Know Your Market
Private investors are solicited every day by businesses of all types.
As a matter of fact, the investors that you want are probably being approached by one or several of your competitors.
How do you differentiate yourself?
By learning all there is to learn about the competition, the marketplace, who has succeeded and who has failed.
Be a devoted student of your industry, and use your knowledge to develop an argument that your business is a viable.
It’s important to start this learning process now, before you end up in a meeting with potential investors.
Remember—private investors love an entrepreneur who actively studies the market.
2. Learn About Different Types of Private Investors
A seasoned private investor doesn’t have time to explain basic investment principles.
They want to know that you’ve done at least some homework.
Likewise, a private investor with less experience wants to be confident that you understand what you are asking for.
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There are many books and web sites to help you develop your grasp of investing.
For starters, understand three different types of private investors:
Venture Capitalists
Aggressive private investors, or groups of investors, who see strong potential for growth in a business.
Venture capitalists often have a high level of expertise, and want more participation.
They expect some of their investments to fail, but they expect the occasional big success to make up for it.
Angel Investors
Individual private investors who usually offer smaller investments at more favorable terms than venture capitalists.
Angel investors may have a social or personal interest in the business, but they are nonetheless looking for ROI.
Private Equity Investors
These are often private firms seeking 100% of the company in which they are investing—in other words, a complete buyout. Private equity firms generally invest large sums of money in relatively low-risk situations.
3. Perfect Your Pitch
Even if you have the contact information of every private investor on the face of the earth, you won’t get anywhere without a good sales pitch.
You’ll need a solid business plan and well-rehearsed pitch before you even think about approaching private investors.
There are a plethora of online resources to help you.
Hiring in a consultant or seeking a business mentor can be equally useful in perfecting your message to would-be private investors.
4. Join a Trade Association or Business Group
Joining a trade association related to your industry is a great way to bring yourself closer to private investors.
You can network with other businesses that have successfully raised capital from private investors, and learn from them.
You can stay informed about industry trends and legislation—because the more you know about the marketplace in which you are competing, the more private investors will respect you.
There are also national organizations, like the National Venture Capital Association, which bring you within arms’ reach of private investors.
Chambers of Commerce, Economic Development Agencies, and Small Business Development Associations are also worth considering.
When it comes to networking, leave no stone unturned.
5. Find Out Who Invested in Similar Businesses
The internet is full of information that can help you find private investors. Start by making a list of successful companies who are either in or close to your market sector.
Chances are, many of them raised funds through private investors.
Once you’ve done this, use the almighty power of Google to discover the names of private investors who backed those companies.
You will soon have a growing list of real investors who put real money into real businesses like yours.
6. Make Your Pitch to a Small Business Investment Company (SBIC)
You may not know it, but the U.S. government is a venture capitalist.
The Small Business Administration (SBA) has been investing privately in businesses since 1959, and now invests upwards of $1 billion annually through its network of Small Business Investment Companies.
Before you get too excited, there are a few drawbacks. Businesses must fall within certain ranges of profit and growth in order to qualify, and the packages offered sometimes include loans.
Still, there are many advantages. SBICs are less adverse to risk, since their capital is guaranteed by the U.S. government.
It’s also relatively easy to get in and make a pitch.
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Conclusion
Once you’ve made your case as watertight and convincing as you can, there are ample opportunities to connect with private investors through trade associations, business networks, online services, and even government programs.
The more your refine your pitch, and target investors who are interested in your industry, the greater your chances of scoring private investors who can actually help you start or grow your empire.
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