For fledgling enterprises attempting to raise financing, private investors are crucial. Private investments not only provide financial assistance to entrepreneurs, but they can also provide skills and contacts that a fledgling business may require to advance to the next level.
The quantity of money invested by private investors varies substantially, since investors from the United States and abroad come from a wide range of budgets and industries. Many investors consider their own interests, if the idea is novel in their minds, and the location of the new business.
Because some lenders prefer to invest locally, the location of the firm may be a consideration. Many private investors concentrate in and around major US cities such as San Francisco, Los Angeles, New York, Chicago, and Seattle. However, as long-distance connections have become easier to maintain, internet partnerships have grown in popularity, and the location of your company may no longer be as relevant. This can be advantageous because real estate and rent costs in some of these high-end cities can be quite exorbitant.
3 benefits of finding a private investor for your business
Here are some reasons why you should seek out private investors for your small business.
1. More moolah
Of course, the most essential factor is financial. Giving up stock to a private small business investor is usually not worth it if you don’t need money. For the other advantages, simply engage a consultant.
If you start looking for venture financing, private investors can fill your cash bucket and also act as a lead investor. And, if your company is doing well, you might be able to get more financing in the future.
2. Mentorship and consulting
If you can locate an investor who has been there and done that, their advice will be priceless – especially if you’re in the same field.
All of the investor’s blunders, how they handled an ever-increasing workload, and all of the accidents that necessitated additional internal procedures can now aid your company. Good investors will want to meet at least once a year to go over their finances. Take advantage of that time to pick their brain.
Over the course of a lengthy career, you make a lot of contacts — with customers, vendors, banks, insurance agents, and even accountants.
When you first start your business, you must meet all of those folks for the first time. You’ll save a lot of money and time if you can leverage your partner’s contacts to secure a loan or a new insurance policy.
The 3 types of personal investors for small business
There are a few different types of investors you’ll come across when seeking for small business investors.
1. Other business owners
Many entrepreneurs want to develop their firm to the point where they can get away from the daily grind as they get older. They’ll eventually have executives in charge of most areas, allowing them to reduce the 80-hour workweeks they’ve been putting in for decades.
The majority of those entrepreneurs, on the other hand, have a difficult time cutting back. What do they do after they quit working after a lifetime of uninterrupted work?
Investing in other firms could be the answer. Many of the highs of owning and running a business are available to private investors without the grind.
2. Lead investors
Angel investors are frequently the first to become lead investors. They invest in your company before it has generated any revenue, and then guide you through the fundraising process.
If your company isn’t in a high-tech, fast-growing field, you might not want to look for a lead investor.
3. Passive investors
Wealthy individuals who are tired with the stock market or local real estate markets will begin to consider small business investments. Though some of these investors are wealthy as a result of starting a business, others will have inherited their fortune or acquired it via years of working in a high-paying job.
These investors are excellent at raising funds, but they may become passive — that is, someone who receives financial statements each year but does not participate in the management of the company.
How to find personal investors for your small business
Here are a few pointers on how to locate a private investor.
1. Talk to friends and family
Friends and family should be your first port of call when looking for private investors. Because these are people you already know, pitching them will be easier, and there will be less of a transition period once the investment is made.
You may need to contact your father-in-law or reconnect with an old college roommate as a result.
The disadvantage of relying on friends and family is that money can sour ties. If you do decide to go that route for an investment, keep the amount small or structure it such that you can pay it back over time even if the firm fails.
2. Talk with your existing network
Your network is similar to friends and family, however it consists primarily of acquaintances and connections. All of the folks you’ve connected with on social media or golfed with a few times could be potential investors.
Set up a lunch meeting with someone you think is a good potential to pick their brain first. You’ll get a lot of ghosted emails if you send an email asking for money too quickly.
Spending time with the investor and providing something of value to them is a superior strategy. For some, it may simply be a person with whom to discuss business. Eventually, you’ll be able to discuss your business and your financial needs.
It’s a difficult path to take because the greatest method to get money is to avoid entering a relationship only for the sake of making money. People are turned off by that attitude. You must walk a fine line between building a valuable friendship and eventually asking for money.
You can also be referred to a possible investor through your network. In that instance, you should go right to the point because the meeting was set up for you to pitch your company.
3. Get out and sell
Getting out and making your case is the most difficult approach to get private investors. Warm and cold leads are terms used by salespeople in marketing to describe the leads they receive. A warm lead is someone who has expressed interest in the goods but requires assistance in making the purchase.
A cold lead is an email from someone who has no idea you’re going to call them. If you’ve exhausted your network of friends, family, acquaintances, and contacts, you’ll have to rely on cold leads.
It will be a good indicator of your company’s future success. The founder’s salesmanship determines whether a small business succeeds or fails. You must sell to customers, but you must also sell to vendors, convincing them to let you buy on credit, the bank, and even staff, convincing them that the company will be around in six months. There’s a strong chance your firm will succeed if you can persuade some random person to invest in it.
There isn’t a magic method for doing this. You are required to attend conferences and meetings. Make small talk with strangers you meet at business events. Contact the person with whom you completed one transaction three years ago. If you have to, talk to folks in the grocery store.
Go private to go public
Private investors are the lifeblood you’ll need to get through the inevitable financial and mental setbacks. Take the time to discover a good one, and once you do, maintain the relationship. Your endpoint may be an initial public offering if you locate a competent lead investor.
Finding the right financing for your small business
Knowing what you need the money for and which lender makes the most sense for you to deal with is the first step in finding the correct form of finance for your business. If you’re launching a new company, a venture capital firm can help you get it off the ground. Alternative lenders are ideal for any type of business that need a short-term, high-interest loan.
Regardless of the type of money you require, networking and engaging with a variety of investors is the best method to find it. After you’ve narrowed it down to a few, you can team up with the one that makes the most sense for your company.