{"id":1633,"date":"2020-08-20T17:13:10","date_gmt":"2020-08-20T22:13:10","guid":{"rendered":"https:\/\/www.northone.com\/blog\/?p=1633"},"modified":"2023-05-16T14:57:59","modified_gmt":"2023-05-16T19:57:59","slug":"how-to-find-investors","status":"publish","type":"post","link":"https:\/\/www.northone.com\/blog\/start-a-business\/how-to-find-investors","title":{"rendered":"How to Find Investors for Your Small Business"},"content":{"rendered":"\n

Starting a small business is really exciting, but it can also be very expensive. The funds for your business don\u2019t have to come from your own pocket. Many entrepreneurs find investors for their business to fund their growth.<\/p>\n\n\n\n

There are a number of ways to get investors on board with your business. The main thing you\u2019ll need is a winning idea and a clear vision as to how you\u2019ll turn that idea into a successful business. In this article, we\u2019ll unpack the different ways you can get funding for your business and the best way to go about finding an investor for your business. <\/p>\n\n\n\n

<\/span>What is a Fair Ask for an Investor? <\/strong><\/span><\/h2>\n\n\n\n

Before you start seeking investors, you\u2019ll want to put some work into how much your business is worth, and how much you want to raise in investor funding. <\/p>\n\n\n\n

First, you\u2019ll need to calculate the value of your company at the time of the funding request. You can start by adding up your assets, or everything the business owns including equipment and inventory. Calculate the revenue of your annual sales, and do a cash flow analysis<\/a>. Traditionally, when seeking investors, the rule of thumb is to ask for 20-30% of your total value in funding, in exchange for 20-30% of your company. <\/p>\n\n\n\n

Factor in, realistically, what you\u2019ll need in funds to support startup costs. Adjust your expectations according to this figure and add a buffer. Round up your funding request and adjust the equity you\u2019d offer to your investors based on this number. 
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<\/span>How to Hook Investors and Get Small Business Funding<\/strong><\/span><\/h2>\n\n\n\n

Once you\u2019ve found some potential investors, the next step is to reel them in and get them to invest in your business. To do this you\u2019ll need to write a business plan<\/a>. Conduct extensive market research that can help investors understand the risk of their investment and the expected return on investment (ROI). Investors are not charities. Usually, they\u2019ll be looking for something in return for their support, this is why you need to offer them reasonable equity in exchange for their investment. You\u2019ll want to promise them transparency with their investment. They have stakes in the game and therefore have a right to know what\u2019s going on with the business. They will want to know where their money is being spent. North One\u2019s innovative mobile banking<\/a> has integrative features<\/a> that can make it easy to give investors insight into what\u2019s happening with the finances of the business.\u00a0
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<\/span>How to Find Investors<\/strong> for Your Business<\/span><\/h2>\n\n\n\n

Before you get your investors excited about your business, and convince them to invest, you have to find these investors. Here are some options for seeking funding for your business from investors.<\/p>\n\n\n\n

<\/span>Start with Your Inner Circle<\/strong><\/span><\/h3>\n\n\n\n

When it comes to finding investors for your business, a good place to start is with your inner circle, particularly if your business is valued under $1 million, which the majority of small businesses are. This is a good place to start because these are relationships you have already spent years establishing. <\/p>\n\n\n\n

Your friends and family can be a trusted source of financial support. In turn, your inner circle will likely have a better understanding of who you are as a person and can rely on you to hold up your end of the bargain. Even though you will have personal relationships with these investors, it is important that you still conduct yourself professionally. <\/p>\n\n\n\n

Write up a legally binding contract with the terms of investments. You\u2019ll want to create clear cut boundaries and regulations to protect both your relationship and your business. 
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<\/span>Research Small Business Loans<\/strong><\/span><\/h3>\n\n\n\n

Another option for sourcing funds for your small business is by getting a small business loan. The Small Business Administration (SBA)<\/a> facilitates thousands of loans to American businesses every year. <\/p>\n\n\n\n

The SBA doesn\u2019t provide money itself, but works with lenders to help small businesses secure loans with the SBA as a guarantee. This means less liability for small businesses and low-interest rates on repayments. These loans are available for general startup and operational costs of businesses but are also provided to businesses that have been affected by natural or economic disasters. 
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<\/span>Consider Crowdfunding <\/strong><\/span><\/h3>\n\n\n\n

Another common choice for funding these days is crowdfunding. Crowdfunding platforms provide business owners with an online channel to raise funds. You can set up a campaign for different projects you need to raise for. There are a few different crowdfunding options. <\/p>\n\n\n\n

Rewards-based crowdfunding<\/strong><\/p>\n\n\n\n

Rewards based crowdfunding is where people contribute a small amount of money in return for some type of reward. For example, if you need funds to build a prototype of your product, the reward might be that those who contribute will receive one of the first products when they are available. Kickstarter<\/a> is probably the most popular rewards based crowdfunding platform. <\/p>\n\n\n\n

Donation-based crowdfunding<\/strong><\/p>\n\n\n\n

The other option is donation-based crowdfunding. The difference in this case is that when the money is donated, it is not expected back. Donation based crowdfunding is usually for a project that will benefit the greater good. It might be to support a community based or educational project. Sometimes it is to raise money for a family or individual in need. Just Giving<\/a> is an example of a donation based crowdfunding platform. <\/p>\n\n\n\n

Peer-to-peer lending<\/strong><\/p>\n\n\n\n

Peer-to-peer lending is a relatively new lending option. The goal is to cut out the middleman, allowing businesses and individuals to get funding from their peers without involving a financial institution. There are a number of websites that can connect borrowers to the right investors. The business fills out a form and the website or agency will provide a profile for potential investors. It is then up to investors whether or not they want to invest. This type of funding is similar to a bank loan as the investor receives monthly payments with interest. These investors probably won\u2019t own much equality if any at all. <\/p>\n\n\n\n

Equity crowdfunding <\/strong><\/p>\n\n\n\n

With equity crowdfunding, investors will receive some ownership of the company they invest in. This form of crowdfunding can be risky as there is no guarantee on return, that being said with big risk comes big reward. Startups also don\u2019t pay out dividends or interest early on in their operations. 
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<\/span>Know the Difference Between Legal and Illegal Investment<\/strong><\/span><\/h3>\n\n\n\n

The last thing you want to do is get involved in illegal activity when you are trying to start a business. It\u2019s important you educate yourself on the difference between legal and illegal investments. Make sure you know the basics of the Securities and Exchange Commission (SEC) <\/a>requirements. <\/p>\n\n\n\n

Know the difference between accredited and non-accredited investors. Any company that offers or sells securities must register with the SEC. An accredited investor is any personal or legal entity that is allowed to participate in investment activities not registered with the SEC. <\/p>\n\n\n\n

An accredited investor is any person who:<\/p>\n\n\n\n