Private Investors For Startup Small Business
Finding private investors for startup small business may sound like a hard job but it shouldn’t be. You can find a lot of them out there. I’ll give you some advice on how to do that. But first, keep in mind that almost every private business investors, you are looking to cooperate with, once were in your shoes at their beginnings.
I know that your first thought is the bank. Yes, that could be and the banks are a very popular way to get capital for a startup business. On the other hand, it could be a risky way due to penalties, high fees, and interest rates, and it’s harder to get money from them. Also, bankers are rarely creative. They might not understand the essence of your business idea. With private investors for startups, you can avoid this misunderstanding. I suggest another option. Before I go deeper into this subject let me be clear about one important thing.
Want to find investors with capital?
Are you an investor looking for investment opportunities?
What are private investors for a startup business?
Private small business investors are people that are willing to invest their own money into your startup company. Their goal is to help you with your business to succeed and get a return on their investment, of course. But this field of private investors for small business is actually more diverse than I said in the previous short answer.
Small business private investors mostly come from the companies focused on investments, for example, angel investors or venture capital companies.
The greatest advantage in dealing with private investors for startups is that they usually have knowledge and experience in the specific type of industries. What you have to do is to match the right one when seeking an investor for your small business.
For example, if you want to start a hotel you’ll not try to find an investor from the investors experienced in mining. The main point is to connect with an investor that could understand your business idea. You’ll need one capable to evaluate how your unique idea can be realized in the real-world.
This advantage in dealing with private investors has its drawbacks also. Due to their experience, they are capable to recognize bad ideas and reject you if you don’t have a plan that matches their goals. They will never put their money into risk. Small business private investors will give you a loan or invest in your business only if certain that they will have steady returns or your business plan is strong enough to guarantee regular paybacks.
How do I find private investors for my small business startup?
Networks and connections. You must be ready to network with the right people in the industry to find private investors for a startup small business. And I assure you when you meet the right people plenty of opportunities will be opened to you.
But what you have to do to meet them?
One of the possibilities is to attend industry events as much as possible. Don’t be worried if you’re not qualified or your business is just an idea in your mind. Even if you don’t find investors for your startup there, these events can be valuable for you. You may get some interesting and important clues from other startup owners or business experts. What you’ll need is to make connections, the relationships that may help you.
But this is just one step. To find private investors for your small business startup you’ll need a lot more. I don’t want to discourage you. My idea is to prepare you for the issues that may arise and to tell you how to overcome them.
Many factors influence your path from business ideas to real business. Many will say you’ll need a unique idea. That’s true but we have so many people in the same industry with an almost identical idea. But not all of us can be Mark Zuckerberg and we don’t need to. As a founder of a startup, your advantage when you seek private investors could be being prepared and a developed business and marketing plan. Keep in mind that stats are cruel. Almost 90 percent of startups collapse, but 10 percent survive. Our common goal, mine and yours is to put you into these 10 percent.
My first suggestion: prepare your first step in detail.
I understand you have an astonishing idea for a startup. But do you have a strong business and marketing plan? Why this is so important? Well, there is no private business investors or private investors for small business loans ready to invest in some possible but hypothetical business. Your potential investors will require the result of your market research, so you’ll have to present them confirmed demand or lack of it. Further, prepare the action plan on how you see your business can be successful, add milestones, possible problems, and how do you plan to solve them. Your action plan must be clear.
The key point for your startup to take off is uniqueness and long-term planning. You need to know the exact amounts of how much you need in investments. Also, you’ll need to know what your ROI (return on investment) will be. You should plan the expenses you will have. One of the most important parts of your business plan has to be the details of your targeted consumers. Finally, at least you should have a plan on how to market your product or service. Nothing of these is possible if you don’t have a vision. You have to anticipate how your startup will grow.
Also, you’ll have to be well versed in the field you’re entering. So you’ll need to know everything there is to know about your competitors. Moreover, the knowledge of the chosen industry’s historical performances and current success and trends will give you an advantage. Investors will want to know answers to the questions mentioned above, so you must have prepared answers.
Try to be pitch concise, and respect investors’ time. Make PowerPoint presentations or visual storyboard. Never use more than 15 slides, your presentation should take less than half of an hour. It should be just a guide, an instant but concise matter.
What private investors do you want for your startup business?
Before you approach potential investors, you’ll have to know exactly what you want from that relationship.
For example, if you need some kind of guide through the process of creating a business, some angel investors, private equity companies, or venture capitalists can be more suitable. But if you seek just funding, in such a case you should try to find some crowdfunding or loan source.
Knowing how to find a suitable investor that is right for your startup will bring your business idea to life. Picking the right investors can make or break your business.
Private investors for startup small business vs angel investors
Angel investors are lenders for small businesses. These are usually rich people or companies who want to invest in small businesses. As a difference from a private investor, angel investors will want to possess more control over your business. They want to secure their investment in your business. As a startup owner, you can negotiate the level of their involvement but be prepared the most of them prefer full control. Their money is in play, you have to understand that.
Some will demand a position on a board or a consulting role in your company. Many angel investors will demand detailed and regular communication throughout weekly reports, for example. The relationship between angel investors and you aren’t predetermined, it isn’t cut and dry ever. They will demand to be involved at least in strategic decision making if not in the day-to-day running of the business.
Private business investors vs Venture Capitalists
Venture capitalists are similar to angel investors. They are ultra-high-net-worth people or companies that handle the property of those people. As a difference from private investors, venture capitalists will rather invest in businesses with strong and healthy performances and track record of revenues. These investors prefer the potential for high growth and will always demand an active role in your company.
The biggest request they have is the exit strategy which will suit you if you plan to sell your company in the future. But most of us don’t have such a plan nor do we intend our companies to go public on the market. So, venture capitalists might be the wrong move for the majority of the startups. Also, if you make a deal with them you could be stuck if you need to use your funds because they aren’t quite ready to approve that.
Private investors will allow you if necessary and will not request to be involved in the process. This is pretty much the same as bank loans. But with venture capitalists, you’ll have another issue. They will require a stake in your company. This means they will demand your company’s equity in return for funding your business. This potentially could be a difficult relationship. For example, if you rate your company at $2,000,000 and the investor put in $300,000 of cash, such would get 15 percent of your company. What if you decide to issue stocks with voting rights, for instance? This could be a tricky part of your relationship with venture capitalists because they could demand their part to be paid in cash in exchange for an equity stake. Private investors will provide debt financing. The way I see it, this is a great advantage of private business investors.
Why private investors for small businesses?
Private investors for startup small business are an especially good idea when it comes to seeking funding. Often they will do the same due diligence and expect the same information as the banks, but there are some considerable differences. Private investors for business loans are specialized in some field. They will almost never invest in the company from the industry they don’t know well. This can be very beneficial to you because they know how to turn your business idea into a real business. Moreover, they do want to help you become a success. For example, if you want to open a hotel, a private investor that has several years of experience in running hotels is a better pick for you. Such already knows all the potential pitfalls and hurdles, she or he is able to recognize the advantages and disadvantages of your hotel idea.
What banker can do? To book the room in your hotel?
But banks will give you the freedom along with the loan. Yes, private investors for small business loans will do the same. They will almost never demand direct interaction with your company. Their advantage is that they prefer debt financing. They can keep a lower profile when it comes to actually running the business.
Angel investors or venture capitalists require a large part of your company in return for funding it. Venture capitalists require equity preferably than debt financing. Angel investors may demand a position on your board of directors. Or some similar involved function as I mentioned above. To put this simple, they want to protect their investments in a way that isn’t always beneficial for you.
When looking to find a funding for your business idea, one of the smartest things to do is looking to find private investors for startup small business. Someone who finds your idea intriguing and willing to bet on it. But private investors for startup small business are not always actively looking for investment opportunities. You need to go out and look for them. One of the ways is going through capital brokers companies or advisors. These are specialized companies that look to connect potential private investors and prospective entrepreneurs. They often maintain big networks of contacts among the investors who prefer to keep a low-key profile. And they will put an effort to find for your business an investor who understands your business idea, something banks usually don’t while venture capitalists might have the idea of their own. Thus, pitching your idea to a capital broker could be the smartest move for your small business.
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