Once you have decided that you would benefit from some external investment for your business, your next steps are to find the right source of finance. This article gives you some ideas of where to find investors that might be that right fit for your business.
The first thing to mention is that, as well as a good business plan, you will need a lot of determination and resilience. Many successful business owners have had numerous rejections, but kept knocking on doors and eventually obtained the investment they required.
Business angels are basically private individuals who will either invest individually in your business or jointly with others in a syndicate.
There are many national or regional Angel Networks where investors listen to pitches from business owners. A good place to start is the UK Business Angel Association.
Crowdfunding is a concept whereby individuals collectively pool their resources, typically via the Internet, to raise capital for businesses.
There are many excellent crowdfunding sites, many of which have their own specialisms, for example start-up/seed capital or growth funding.
Private equity/venture capital
These are typically specialist investment companies looking for high growth within a period of three to five years. Private equity firms tend to invest larger amounts than business angels, which can run in to multi millions depending on their fund size and individual objectives.
The funding market can be a confusing place. As such, there is great merit in seeking professional assistance from professional advisors, brokers, or some firms of accountants, who will be able to introduce you to appropriate investors.
This will not be a free service and may appear to be a cost you could do without, but if it gets you the external investment for your business that you need, it can be money very well spent.
Friends and family
You may know someone who wants to help you succeed whilst benefiting themselves by investing in you. You may be surprised who has surplus cash and the confidence to back your idea.
Ensure they understand it is a relatively high risk investment. If you obtain the funding, make sure that everything is set up correctly and legally for the protection of all parties. If they decline your offer, accept their decision graciously. Do not risk losing friends or falling out with your family members.
There are numerous online professional networking sites which can help you connect with a wide range of investors. Start-up Launch Platforms are another useful online service which can locate investors.
Working with a business incubator can help put in touch with the right people. Also, do not forget to market yourself through social media, blogs, networking and other more traditional forms of marketing.
Once you have identified which investors to approach, the next step is to perfect your pitch. Sometimes, you may only get ten minutes to present your business opportunity to a prospective investor. Here are some quick tips to help you get it right:
Tell your story in a positive, concise and compelling way. Avoid a dry and boring presentation. Provide a short summary of your background and your successes to build credibility.
Explain what your product or service is, why it is unique and what problem it will solve. Keep it simple and ensure the audience can understand it, especially if there is complicated technology involved. Demos are a good idea if feasible.
Describe your target market and why. What market research has been undertaken? Avoid saying that everyone in the world is potentially your market – be specific.
- Sales and marketing
Summarise your strategy for reaching your customers.
Detail who your main competitors are and why your product or service has advantages and benefits over theirs.
Investors invest in people, so this section is key. Explain who is involved and what their strengths are. However, if there are gaps in knowledge or weaknesses which need addressing, do not shy away from this. Perhaps you are looking for an investor with complementary skills.
Investors will focus on the finances and will be looking for a clear and concise summary detailing:
Profit budget – historic and realistic projections (3 to 5 years) including turnover, gross profit margin and bottom line profit.
Funding – how much funding is required and for what purpose.
Summarise your cash flow forecast to substantiate the figures.
- Exit strategy
Investors may be interested in when or if you are looking to exit the business, be that through a trade sale, flotation or something else. They will want their money back with a good return!
As mentioned, you will need a thick skin and an ability not to let rejection get you down. You may not get external investment for your business immediately, but finding the right source of it will be well worth the effort.