Learning how to find investors takes both experience and intuitiveness. There is no treasure map or magic bullet to help you find investors for your company, but there are smart tactics to make the process go faster and more successfully. Here’s everything you need to know about finding that benevolent investor you’ve been picturing, as quickly as possible.
Types of Investors
Typically, it is small businesses, startups, or entrepreneurs who need to find investors, but an influx of funding can be needed for various types of businesses at different growth stages. Before we discuss how to find investors, let’s examine the different types.
There are five primary kinds of investors:
- Angel Investors. An angel investor provides financial backing for startups or entrepreneurs, and typically does this on a regular basis. Some angel investors specialize and only finance certain industries. So finding donors for a nonprofit and investors for a high-tech startup could be very different. Each “angel” will most likely have a list of requirements you must meet to be considered for financing.
Angel investors can either be a singular person who has the wealth to contribute or a group of angels who all contribute to a pool of angel investment money to support a single company. This financial support isn’t done purely out of good will – the angel investor typically gets equity in the startup or convertible debt in exchange. Some may even want to be part of the board, act as an advisor, or be heavily involved in the day-to-day decision-making. How much control they want (and you’re willing to cede) will be part of the investment negotiations.
What’s unique about this type of investor is that, because they are often contributing their own money, a strong personal connection must be established. The angel investor must truly believe in your product or service, and if they do, might be willing to take on more high-risk ventures than other types of investors.
“There are an estimated 268,100 active “angel” investors in the United States. They invest an estimated $20 Billion into 60,000 companies a year. On average, they invest $74,955 into companies.” –Fundable.com
- Peer-to-Peer Lending. Peer-to-peer (P2P) lending is a less intimate type of financing than angel investing, at least in the sense that the investor’s first impression of your business will be cold, hard facts they read online, with no initial personal connection. If you’re learning how to find investors, the essential way P2P works is that entrepreneurs or startups post their business plan online for review by investors. There are specific websites offering this service and entrepreneurs typically need to include their business plan, background, progress/status, and revenue (if any) generated to date. P2P investors will evaluate a business plan’s potential and then bid on the ones they find worthy. The P2P investor is usually a private individual and you will negotiate the investment’s interest rate directly with them.
- Venture Capitalists. This type of investor is a funding organization that is more viable for startups and businesses who have a polished business plan and high likelihood of success (aka profit). Generally speaking, venture capitalists only consider companies who have shown a history of returns and are more risk averse than angel investors and P2P lenders. The good news is that venture capitalist will make bigger deals – they have more funding at their disposal and can invest millions. In exchange, entrepreneurs will usually hand over equity and some management of the company.
Venture capital firms have websites but getting your business plan in front of one isn’t as simple as posting it online as you would do with the P2P lending sites. Reaching out through your network for an introduction is the best chance of being considered by a venture capitalist.
“The venture capital ecosystem deployed $58.8 billion across the United States in 2015, marking the second highest full-year total in the last 20 years…” –National Venture Capital Association
- Like venture capital firms, banks can help finance your small business, but won’t even consider giving you a loan unless you have a comprehensive business plan. Probably the least risk tolerant, banks will want information on your business, industry, prospects, competitors, products and services, financial projections, and more. Your credit history will, of course, be taken into consideration as well. You can approach your existing bank for a small-business loan, or shop around based on interest rates and financing flexibility. You can also apply for a loan through the Small Business Administration, which offers several different loan programs.
When a bank invests in your company, it can take the form of a straightforward personal loan or you can often strengthen your cause by adding collateral through something like a home equity loan. While banks might be one of the more rigid types of investors, they also will ask for the least in return. You’ll be responsible for repayment, but a bank won’t be asking for partial ownership of your startup or a seat on the board.
“The average loan extended to U.S. businesses in 2016 ranged from $671,000 to $850,000, according to data from the Federal Reserve.” –Value Penguin
- Personal Investors. Personal investors are your friends and family. These are the people who will take a leap of faith and finance your business because of you, and not as much because they’ve thoroughly vetted your business plan. The (big) catch is that you’re mixing business and personal and that can add complications to your entrepreneurial plans that you hadn’t anticipated. If your venture fails will you be putting them at severe financial risk? If it succeeds, will there be an increased expectation of ownership rights? Or if it succeeds, but at a much slower rate than planned, will it cause frustration and tension that put both the investment and your family relationship at risk?
To keep the investment as professional and clear-cut as possible, it is recommended that all parties sign a promissory note outlining the loan and repayment terms, if not create a full-blown partnership contract.
Ways to Attract and Find Investors
Once you know the type of investors is right for your situation, you can start an aggressive search. It goes without saying that your business plan should be rock solid and you should have your elevator pitch perfected. Know your numbers, know your business, and then start your investor search. Here are several proven ways on how to find investors for your startup or small business:
- It goes without saying that networking is your top (and best) way to find investors. Your “relationship capital” is the most valuable asset you own. Your connections to others, both personal and professional, will be crucial to finding pathways to investors. Not to worry, you don’t need to create a corkboard pinned with headshots and yarn showing how everyone you know is connected – there are sophisticated online platforms to help you activate your network and maximize your relationship capital, which we’ll get into in the next section.
- Research Your Industry. Who are the major players in your industry? Not only the top 1% who hold all the influence, but also the angel investors who specialize in this space and have consistently financed businesses like yours. Knowing the industry inside and out means you can prove that your product or service is truly as unique and in-demand as you think it is; and you’ll also know who the people are that control or infuse money into the industry. These are the people you need to get in front of.
- Find P2P Lending Sites. As mentioned earlier, P2P lending allows your startup to get funded without involving a financial institution. There are a variety of P2P lending sites where you can post your business plan to be considered by investors, each with its perks and limitations. According to Forbes, the four best lending platforms (with detailed analysis) in 2017 are Lending Club, Prosper, Upstart, and Funding Circle.
- Angel Networks. Angel networks may be easier to find than individual angel investors. A quick Google search will reveal the ones in your city (remember to focus on any that specialize in your industry). If you don’t have any “relationship capital” to connect you directly to an angel network, their funding cycles will trigger you on when to apply for investment. Several startups are bundled together in one funding cycle to mitigate risk. If your business is not one of the chosen few, the individual angels who compose the network are allowed to reach out to startups independently.
- Incubator Programs. Short-term and cyclical, incubator programs are boot camp for startups. If your application is chosen, your startup will usually be brought in-house for a period of time. During this time you will receive mentoring, operational support, office space, and scaled funding. The goal is to grow quickly within a collaborative and “high touch” environment. Not only will this intense period help you form relationships with potential investors within the incubator program, but incubators have established relationships with angel networks and other types of lenders to help you get a step up the investment ladder.
Finding Investors Using Relationship Science
All of the methods just discussed to find investors are proven to be successful, but involve a lot of manual labor. Also, almost every single one can be distilled down to one thing: your network. The best way to find investors is by fully exhausting your network, and that takes time and relentless effort.
Relationship Science (RelSci) is a robust online platform that has specifically been designed to maximize your relationship capital, which makes finding investors dramatically faster and easier.
RelSci’s mission is to “bring science to the art of business relationships.” The company works with organizations to aggregate and map all of their relationships, revealing pathways to the 6+ million people and 2+ million organizations in its database. The platform reveals clear, verifiable pathways to access the most influential people by industry, company, role, and more.
The technology is built upon a complex algorithm that gathers research-based data from publicly verifiable sources – there is no social network data or user-generated information to dilute the data. The pathways between people or organizations are clear and factual, revealing everything from past employers and political donations to board memberships and personal relationships.
A few of RelSci’s most powerful tools to help you find investors include:
- Power Search. Create a target list of investors by running a query in RelSci’s proprietary database of 6+ million influential decision makers and @+ million organizations. Search by industry, school, role, company, cause, and more to see who you, and extended network know.
- View verified profiles of both companies and individuals. The profiles are populated by data gathered from thousands of publicly verifiable sources. You can view education, career history, donations, board affiliations, awards, hobbies, relationships, etc. Within a few seconds, you’ll see how your network maps to each profile you’re viewing and find access points to investors or organizations (like angel networks) you want to reach.
- 360 Alerts. Closely follow the activities of all the investors on your target list. Doing what entrepreneurs will never have the time to do, 360 Alerts delivers customizable news to your inbox every day. Much more targeted than Google Alerts, this service sends you news and updates on a specific person and company, and all of their affiliations. You’ll receive information like stock sales, job changes, investment activity, and other professional updates that won’t be covered by the media. Refine your investor list based on the information in these alerts, and have a reasonable cause to contact investors with an informed comment about a news byte.
Find an Investor Today
The fastest, best way to find investors is to leverage your network. Relationship capital technology like that offered by RelSci is the most efficient and powerful way to identify, aggregate, and map your network connections to your target investors, giving your company the strongest chance of securing funding.