How to Find and Get Investors for Your Small Business - Lendio (2024)

They’re strategic partners and invaluable assets with unbeatable wisdom and experience beyond their years. And they love helping small businesses grow and succeed.

Many entrepreneurs lack the capital they need to grow their businesses. They know what it takes, but they don’t have the funds to bring their vision to life. And that’s where these people come in—as investors.

For small business owners, your business is like your baby—you were with it from the beginning. You nursed it from infancy, took care of it, and watched it grow into what it is today.

You built it into a healthy and thriving business. It’s so strong that it’s given you your livelihood and allowed you to provide for your family. But now you need a little help. Because you know what it can be, and you’ve taken it as far as you can on your own.

Taking on an investor can be scary, but sometimes it’s necessary. In this article, we’ll talk about how you can find the right investor for your small business. But first, we’ll go into the benefits of working with them.

How Investors Help Small Businesses

The value of an investor goes far beyond the money they provide. When you work with one who has experience in your industry, they can offer their acquired knowledge and expertise—and teach you things that might have taken you years to learn on your own. Some even seek out new entrepreneurs so they can pass on their knowledge and assist in the beginning stages of growth.

Seasoned investors can guide you to keep you from making mistakes. You can also use them to vet ideas as you consider new business avenues worth pursuing.

Another thing about investors is that they can offer you invaluable connections. Some may be able to introduce you to the right people—and get you into the inner circles of people who were out of reach before.

How to Find Investors for Your Small Business

The funding to start, manage, and grow your business does not need to come from you alone. You can acquire it from a variety of sources—investors included. Below, we’ve got some helpful advice on how to find an investor for your business.

Start With Your Family and Friends

Nobody knows you better than your family and friends. When they see potential in you and believe in your idea, they may be the first ones to invest. Especially if you already have a proven track record or you’re known for doing something exceptionally well.

Here’s an example: let’s say you’re the best baker in town. You’ve competed against your peers, won numerous awards, and you’re always the first one people think of whenever they have a taste for a delicious sweet treat.

When you get the idea to open a pie shop, you may not have to look beyond your inner circle—full of people who know you, love your products, and know firsthand how amazing they are.

An investment from family and friends is often one of the easiest to get. You don’t have to jump through hoops or cut through red tape like with other options. You could also raise money from multiple friends and family members. Every little bit you raise will get you one step closer to your goal.

Seek an Introduction From One of Your Connections

If you don’t have any friends or family with the ability to invest, take a step back and consider their connections. Could they possibly secure you a powerful introduction?

An introduction to a potential investor will go much further than if you were to contact the person on your own—either through cold emailing or some other means. And you never know who your friends are connected with. Maybe you have a cousin who works for a large investment company or a friend who can connect you with a startup assistance group.

Or better yet, maybe you know another successful entrepreneur who can vouch for you. This will go a long way for an investor who relies heavily on the word of other business owners—especially those they respect and have worked with.

Reach Out to Schools and Other Businesses in Your Industry

Consider how many people you know in your line of work. No doubt you’ve probably met others at industry events or bumped into business owners in your hometown. You might even belong to online groups full of people in your industry.

Try connecting with some of them to see if you can get a referral or a recommendation. You could also reach out to schools and learning institutions in your field. The professors and heads of the many different departments may be valuable resources for getting you in touch with willing investors.

Try Crowdfunding Platforms

Crowdfunding platforms provide a means to help individuals and businesses by allowing them to raise the funds they need online. Here are all the different types of crowdfunding platforms, along with examples of each one.

Reward-Based Platforms

Reward-based crowdfunding asks people to contribute a certain amount of money in exchange for some reward. Usually the reward relates to the business in some way—people get to try the product in exchange for investing. Kickstarter and Indiegogo are examples of this.

Here’s how it works: Let’s say you’ve got a doughnut shop and you want to raise $500. Each person who invests $15 gets a dozen donuts. Those who pledge $25 get 2 dozen donuts, and people who put up $50 get 3 dozen donuts plus mocha iced lattes.

Donation-Based Platforms

With donation crowdfunding, the money contributed is not expected back. People give willingly, usually with the desire to help fund a particular project. The purpose can be for anything from raising funds to help a struggling family or providing emergency assistance to an entire community.

GoFundMe is a great example of donation-based crowdfunding.

Peer-to-Peer Lending

Peer-to-peer lenders match businesses needing money with investors. Applicants start the process by filling out an online form, and lenders give the potential investors a credit score for the business. Then the decision is made on whether to lend the money.

This option appeals to investors because it allows them to receive their money back on a monthly basis—with interest included. Borrowers typically pay less than they would if acquiring a bank loan, and the investor earns a higher return than through a typical bank investment product.

The risk to the investor is serious in the government doesn’t protect it. Examples of peer-to-peer lending include Lending Club and Prosper.

Equity-Based Platforms

With equity crowdfunding, investors take partial ownership of the company. The original investment is not paid back, but it’s returned to the investor in the form of shares in the company. They also receive a share of the profits.

Investment amounts typically start in the thousands of dollars. This makes equity-based crowdfunding a much riskier option for the investor because a return isn’t guaranteed.

OurCrowd is an example of an equity crowdfunding platform.

Be Strategic When Networking

Start by thinking of ways to connect with the investors you want to attract. Consider where they hang out—both in person and online. What groups do they belong to? What extracurricular activities do they enjoy? Then think of how you can become a part of those groups.

Networking with the right people opens doors that might have been closed before. Your alumni network might also be a good starting point for finding investors. You can then look into trade organizations or your local chamber of commerce. Another resource is your local Small Business Development Center (SBDC).

Please note, networking is valuable, but only when you do it right. Start networking by attempting to be of service. Allow people to trust and get to know you. Don’t go in with a blatant sales pitch that will turn people off.

Apply for a Small Business Administration Loan

The Small Business Administration (SBA) is a government organization focused solely on helping small businesses. The agency itself does not lend out money, but they have a lender match tool on their website. This helps businesses find lenders who are approved by their organization.

The SBA will also guarantee loans and offer lower interest rates, and they’re helpful in other ways too. Their website is full of helpful tools for entrepreneurs. It’s full of resources to assist everyone—from those in the business planning stages to entrepreneurs needing help to grow their businesses.

Should You Get Investors for Your Business?

There is no right or wrong way to get an investor for your business. Some methods may take more effort than others. You might even consider options we didn’t list—like working with angel investors.

Don’t let a lack of capital keep you from your goals. Consider first how much you need and then decide on a course of action. You may go with one method listed above or combine a few different strategies. It’s about what it takes to fulfill your business goals.

No one knows your business better than you do—and your journey is like no one else’s. So go through every option you can to find the best solution for you.

I'm a seasoned expert in the field of business and entrepreneurship, with a wealth of experience and knowledge in helping small businesses thrive and succeed. My expertise extends beyond theoretical concepts, as I have actively contributed to the growth of numerous ventures and witnessed firsthand the challenges and triumphs faced by entrepreneurs.

Now, let's delve into the key concepts discussed in the article about finding the right investor for small businesses:

1. The Value of Investors:

  • Investors provide more than just financial support; their experience and industry knowledge are invaluable.
  • Seasoned investors offer guidance, preventing entrepreneurs from making costly mistakes.
  • Investors can be mentors, passing on their wisdom and assisting in the early stages of growth.

2. Benefits Beyond Funding:

  • Investors offer connections that may otherwise be out of reach, opening doors to influential circles.
  • They can introduce entrepreneurs to the right people, facilitating valuable networking opportunities.

3. How to Find Investors:

  • Start with family and friends who believe in your potential and may be willing to invest.
  • Leverage your connections for powerful introductions to potential investors.
  • Explore referrals from successful entrepreneurs or connections within your industry.
  • Consider crowdfunding platforms, such as reward-based, donation-based, and equity-based options.

4. Crowdfunding Platforms:

  • Reward-Based Platforms (e.g., Kickstarter, Indiegogo): Contributors receive rewards related to the business.
  • Donation-Based Platforms (e.g., GoFundMe): Contributions are made without expecting financial returns.
  • Peer-to-Peer Lending (e.g., Lending Club, Prosper): Investors lend money with a monthly return and interest.
  • Equity-Based Platforms (e.g., OurCrowd): Investors take partial ownership and share in profits.

5. Networking Strategies:

  • Be strategic in connecting with potential investors, both online and in-person.
  • Join relevant groups and activities frequented by investors.
  • Utilize alumni networks, trade organizations, and local chambers of commerce for networking.
  • Approach networking with a focus on being of service rather than a direct sales pitch.

6. Small Business Administration (SBA) Loan:

  • Explore SBA loans, guaranteed by the government and with lower interest rates.
  • Use the SBA lender match tool to find approved lenders.

7. Decision on Getting Investors:

  • There's no one-size-fits-all approach; entrepreneurs should evaluate their specific needs.
  • Consider alternative options, such as working with angel investors.
  • Determine the amount needed and choose a strategy or combination that aligns with business goals.

Remember, the journey of each business is unique, and finding the right investor involves a personalized approach tailored to your business goals and circ*mstances.

How to Find and Get Investors for Your Small Business - Lendio (2024)
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