What to Know Before Seeking Investor Financing
Interested in bringing someone else on board in your business? Finding the right funding source differs based on where you are with your business.
Seeking an investor isn’t as easy as asking for money to fund your highly promising business idea. It takes serious work, preparation and patience. Chances are you won’t even find the right fit in your first meeting. But before you get to that meeting, here are some things you should know beforehand.
#1. How Much Are You Willing to Give Up?
Some investors only do equity deals. If that’s the case, you have to do two things:
● Get your company valuated
● Decide how much you’re willing to give up for the money needed
This may not always be the case with small businesses, but it’s worth preparing for.
#2. The Three Types of Investors
So you’ve decided that the banks aren’t an option. There are three types of investors you can turn to.
These are often wealthy individuals most interested in early-stage businesses. Angel investors almost always seek to invest in exchange for a portion of the business. In addition, some may also be willing to contribute their expertise.
Venture capital is an enterprise endeavour, so you’re going to need a VC firm if you want to raise more than one million. while it’s a popular fundraising method for high-growth businesses, it’s not ideal for small companies that don’t hold potential for outsized returns.
Crowdfunding is an interesting alternative that’s relatively fresh on the scene (at least compared to the first two). Although it heavily favours the B2C space, certain B2B niches are not completely out of the question. A crowdfunded venture usually doesn’t come with too many strings attached, such as a share of the company. It is, however, harder to get a service delivery industry crowdfunded.
#3. Investor Expectations
You must have a killer business plan before you even think of approaching an investor. People need assurances before they part with their money. So your comprehensive business plan must outline everything that you do. Include realistic projections and use numbers to back up your claims. For any investor, one of the most important concerns is how and when they’re going to get their money back, including the potential returns. Some investors only put their money in niches they’re familiar with. All of this only means that you have to do your research before going into a meeting.
#4. Audit Your Finances
Are you sure that you need external funding? Some business owners jump the gun when they don’t have to. To begin with, you can work on improving your profitability and cash flow. Audit your finances to see where you’re bleeding too much money and what you can do to fix it. Investor funding comes with strings attached, so any business owners or entrepreneurs should only go down this route when absolutely necessary.
Seeking Investments Is About More Than Cost and Convenience
Requesting investor funding is one of the biggest decisions you can make. It can be great for your growth and turnaround, but it can also result in the loss of control and even the business. Make sure that you have all your facts before making a move and that you’re seeking investment for a very valid reason. That’s how you can increase the chance of bringing the right investor on board.