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

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 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