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If you’ve seen Dragons’ Den, you’ll be familiar with the angel investor process: you approach individual investors with your business plan and convince them that your idea is worth putting money into. In reality, this process takes a lot longer than it does on TV, but the principle is the same. You need to convince investors that your business plan is sound and that they’ll make a profit. Here are 10 key things to help you secure those small business investors.
Networking is generally the number one route for finding small business investors. You can never meet enough people, so take any opportunity to go to business events, conferences or mixers. You can pitch your plan in a less formal, more organic fashion and build up social capital that might come in useful further down the line.
A word of advice here: make sure you can talk fluently, clearly and (above all) succinctly about what you want to achieve. In short, have your “elevator pitch” off pat.
Don’t forget to follow up your networking with online contact as well. And, don’t forget the contacts you already have – friends and family can be a good place to start for initial capital.
Networking in person is important, but it isn’t the only way to secure investment. There are plenty of online crowdfunding platforms you could try to raise capital, such as Crowdcube, Seedrs and Funding Circle. To make your crowdfunding push successful you’ll need to promote it, so be ready to email everyone you know and use social media. Get creative – consider a launch party or other ways to spread the message wide.
Start-up accelerators can be a great way to meet investors. Accelerators are support programmes for early-stage businesses that are looking to grow quickly. They usually include seed investment, connections, mentorship, and educational components. Even if you don’t get an investor on the programme, you’ll almost certainly improve your business plan. However, it can be difficult to get onto a good accelerator and it does require a lot of commitment, so do your research to find one that might be right for you.
Once you’ve found your investors, the most important thing they’ll want to know is how much profit they’ll get. When you make your pitch, focus on return on investment. While an investor may believe in your business and like you, ultimately, they need their investment to make money, so be clear and realistic about it.
An investor will want to see that you understand the marketplace you operate in and how your product fits into that landscape. Furthermore, your product will need to offer something the competition can’t and which cannot be easily replicated. Make sure you know your market in detail and that you understand your competitors and how you’re better than them.
Investors will scrutinise your business plan, so it needs to be realistic. Few things will dissuade an investor faster than a business owner who doesn’t know the details of their plan intimately. Take time to anticipate the questions they might ask and be ready to justify any figures or projections. Ask a friend or contact to review your plan and grill you thoroughly before speaking to any investors. It’ll be great practice and might point out any gaps that need filling.
A small business investor will typically provide more than simple funding — often they’ll get involved in the running of the business, too. Make sure you do your homework beforehand and try to find someone who’ll fit with your business specifically. They might be someone established within your sector who can put you in touch with new contacts, or perhaps someone who’s been in your position before and can assist with the challenges you’re likely to face.
Going into the room able to demonstrate that you’ve taken the time to learn about the investor and their past endeavours could give you a real edge.
A common mistake of many aspiring entrepreneurs is to approach investors and ask for 100% of the funding for growth. Savings, personal income or retained profits reinvested all prove that you’re prepared to stake your own livelihood on the success of your business. After all, if you aren’t willing to run the risk then why should an investor?
And, although it can be difficult, it’s worth making an effort to acquire customers before you approach investors. Investors want proof that your idea is going to work, and nothing proves this better than having real, paying customers.
If you’re about to dilute the ownership of your business with investment from somebody else, you’ll need to have a clear idea of how much you’re willing to give away and what you’re looking for in return. Remember that the investor will seek the best deal possible for themselves so go in high and be prepared to be negotiated down. Be prepared to walk away if the deal on the table just isn’t right for you.
If you’re seeking small business investors, remember that there are lots of potential sources out there. One investor turning you down doesn’t mean that another will do the same, so keep trying and be sure to learn lessons from failed attempts.
Did you find this article about small business investors useful? The QuickBooks Blog covers many more topics. It’s all part of the support we offer to small businesses in the UK.