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Five Tips for Finding and Securing Private Investors for Your Start-Up

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Five Tips for Finding and Securing Private Investors for Your Start-Up

By Caron_Beesley, Contributor
Published: October 3, 2011 Updated: April 30, 2012

Looking for a private equity firm or venture capitalist to fund and assist your business growth? Not sure where to start?

If you’re a small business owner looking for an investor, here are five tips for finding and attracting the right investors.  

1. Understand the Difference Between Private Equity, Venture Capital, and Angel Investing

The term venture capital is often used in conversation to mean money invested by a third-party in high-growth start-ups. However, there are several types of investors with slightly different approaches. The SBA Venture Capital Guide provides a solid overview of the various investment options that are open to high-growth startups. Here’s a brief summary of what you need to know:

  • Private Equity (PE) – PE covers a number of investment types that are usually made by private individuals or privately-owned institutions (usually a private equity firm). The money can be used to purchase a company, fund a project, or make a straight-out private investment.
  • Venture Capital (VC) – This is also a form of private equity, but is managed differently and is usually designed to fund startup companies that have the potential for high growth (very popular with technology companies). Venture capitalists not only provide money, but also business planning expertise and assistance to help startups succeed in its industry.
  • Angel Investing – Angel investors are high-net worth individual investors (usually former entrepreneurs) who seek high returns through private investments in startup companies. They provide similar startup financing as venture capitalists but usually in smaller amounts.

2. Government Venture Capital Programs

Another venture capital option you may wish to consider is the Small Business Investment Company (SBIC) Program, available through the SBA. SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses. The SBA does not invest directly into small business through the SBIC. Read more about the SBIC Program

3. Where to Find Potential Investors

If you have a good network then there’s a strong likelihood you can pinpoint potential investors via this route. So start locally and branch your search out from there. Here are some tips and resources that can help:

  • Look to Your Business Community – If you are involved in a local Chamber of Commerce or other small business group, start your search here. Talk to experts and business peers alike. If you are not a member of a local business group, now is the time to consider joining one. Small Business Development Centers (SBDCs) may also be able to help introduce you to local investors. Find your local SBDC
  • Consider Trade Associations – Most industries are represented by a trade association, this is another great place to expand your search and meet potential investors. You can also look into national and local investing and venture capital groups like the National Venture Capital Association and the Angel Capital Association.
  • Talk to Your State Economic Development Agency – At the state level, State and Local Economic Development Agencies may be able to help refer you to investors in your region.

4. Making Your Case

Securing investment requires a planned selling strategy on your part to ensure that you diligently communicate the potential of your business and that you meet the investor’s criteria.

  • Do Your Research – Knowing your business is critical, but you also need to know your investors. Thoroughly research both. Be prepared to answer questions about your long-term growth plans.
  • Fine Tune Your Pitch – Once you’ve done your research, fine tune your sales pitch based on the motivations of the investors and give them a good reason to want to invest in your business.
  • Lean on Your Business Plan – Your business plan is critical. Be sure to include accurate and realistic financials and market research to back up your predictions. Plan on being able to confidently communicate key sound bites from your plan on the fly—particularly how you will generate profit and how that will flow into your investor’s pockets. Checkout SBA’s How to Write a Business Plan guide for tips and templates.

5. What to Expect During the Investment Phase

Once you’ve submitted your business plan and made your case for investment, what can you expect? Learn more from the SBA about the next steps in the The Venture Capital Process.

Related Links

SBA Small Business Loans and Grants Guide

How to Determine Your Financial Needs

Six Tips for Avoiding the Common Financial Pitfalls of Being a Young Entrepreneur

How the SBIR Program Can Help Your High-Tech Small Biz

About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

Excellent Article. I think it should be updated to reflect the growing trend of "Crowdsourcing". kickstarter and indigogo are legitimate avenues of funding a small business.
One of the most important factors in sparking an investor's interest is having some sort of traction. Along with a business plan, there should be something else you are bringing to the table to show you have skin in the game. This "traction" could include, a pre-build website, signed contracts from buyers and so fourth. Again many people have ideas, investors want to see effort put fourth, remember they are investing in you as much as they are investing in your business.
Finding investors is not easy, it will certainly take some time, don't be discouraged if your idea gets rejected once or twice. Many universities also have strong entrepreneurial programs, talk to faculty or staff within the department about the resources they can offer you, they generally have good connections with investors. Thanks!!
I agree 110% to all the above information in this post! thank you so much for posting such useful content / information. I myself am a very ambitious entrepreneur that has been looking from top to bottom on the net for useful guides that I could use to gain more knowledge for myself in the process of finding investors to help all my ideas grow into something real. For anyone interested I also came across some very useful information on a site called  This post was edited to remove a link. Please review our Community Best Practices (http://www.sba.gov/community) for more information about how best to participate in our online discussions. Thank you. if you are serious about finding investors and the proper way to entice them, definitely jump on and give this site a look!
Hi, this article definitely worth looking through. I stubled onto the idea well written as well as conveniently clear. I wish to in person appreciate some time you spend to write the idea. Keep up the good work.
Many start-up businesses rely on initial funding from family or close friends or from money earned from some lucrative part-time jobs. This method is good especially if you come from a rich family or friends who have no reason not to help your business.Portable Gas Heaters
Thanks.. great advice! Finding investors is somewhat difficult especially for starters, we have to have a good marketing and business plan. Apartment for Rent in Quezon City, Apartment for Rent
What I've found is that it's very hard to get business financing if you don't have any money to start with. I wish someone would work on that.

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