You’ve built your business and are ready to expand. It’s time to contact an investor. But what characteristics define the ideal candidate? And where do you look for them? And do you know how to get business investors?
There are numerous types of finance to consider, so think about why you’re involving an investor in the first place. Angel business investors and venture capitalists are more common sources of business funding, and both will invest significantly more in your start-up or small business.
In this article, we will assist you on how to get business investors for your small or start-up businesses, how business investment works, and what qualities the investors are looking for.
How Does Business Investment Work?
The terms “private equity,” “debt,” and “reinvestment” refer to the various ways in which businesses can raise capital. Private equity is when an investor or group of investors provides you with cash in exchange for a stake in your business.
A group of investors, for example, could give you £100,000 to help you buy new equipment in exchange for 20% of your business. Private equity investors are frequently able to provide business consulting and connections.
A business loan is the most common form of debt funding. This means you’ll have to repay the money over time and may have to pay interest. You could use your property or other assets as collateral for a business loan. To get this type of funding, you must be able to make a compelling case for how it will be used and how you intend to repay it.
Reinvesting profits means putting them back into your business. The advantage of this approach is that you will not have to give up any equity in the business, nor will you have any debt or interest to repay.
What Are the Various Kinds of Small Business Investors?
When it comes to private equity investment, there are several options. Which one is best for you will depend on the stage of your business and how much money you want to raise.
#1. Angel Business Investors
Business angels, also known as angel investors, are a group of investors who seek to identify and invest in businesses with high growth potential. In exchange for a stake in the business, angel investors will typically look to invest up to £500,000 in small or start-up businesses.
#2. Venture Capital
Investors and business experts comprise venture capital (VC) funds. Venture capital firms raise funds from private and institutional investors to invest in specific companies. VC funds, on the other hand, are more likely to target established businesses and can provide larger sums of money.
#3. Crowdfunding
Crowdfunding is a type of investment in which many people contribute small stakes to your business via an online platform. Also, Crowdfunding sites allow anyone to invest, and businesses can raise funds in a variety of ways, including by giving away a stake in the company, lending money at a fixed interest rate, or giving away rewards in exchange for cash.
How Much Money Are SMES Attempting to Raise?
According to our SME Insights data, one-third (33%) of businesses seeking investment are attempting to raise to £20,000, while a quarter (25%) are attempting to raise between £50,000 and £100,000.
We found that more than a fifth (22%) of larger businesses with more than 10 employees said a cash injection of £50,000 to £55,000 would take their business to the next level.
Over one-tenth (11%) said they’d need £80,000 to £85,000 to advance, while 12% said they’d need £95,000 to £100,000 to get there.
How to Get Potential Business Investors
Here are our top five methods on how to get potential investors for your small or start-up business:
#1. Family and friends
Family and friends are the most common sources of startup funding after investing personal funds. It makes sense. You don’t have to go through the sometimes difficult processes associated with other investments. And one major advantage of investing rather than borrowing is that you may be able to get more money upfront and will not have to pay it back in installments.
Your friends and family, like any other investors, will only see their money returned if your business is profitable. Remember that this is still a business venture. They have a stake in the company and are now exposed to some risk as well. They may also have some decision-making power, depending on the size of the investment.
#2. Loans for Small Businesses
When it comes to funding, a small business loan may be the best option. The obvious first port of call is your local bank. You are more likely to succeed if you are an established business with a track record of growth. Banks require extensive financial information before approving any loan application. So make certain that your paperwork is flawless.
The main disadvantage of a business loan is that you will have to repay it in installments, regardless of how well your business performs, and most likely with interest.
#4. Investment From Angel Business Investors
Wealthy individuals who are also professional investors offer angel investments in businesses. They usually look for investment opportunities in the early stages of a business and invest their own money. To see a good return on their investment, angel investors typically look for growth potential.
If you get angel business investors on board, they are likely to contribute enough to eliminate the need for additional investors. Angel business investors will most likely want to be involved in the day-to-day operations of a business. You get another expert working on your business as a result. However, it also implies that you must be willing to give up some control.
#5. Firms That Invest in Venture Capital
Venture capital firms provide venture capital. Limited partners provide the funding for these businesses. The venture capital firm then makes its investments in carefully selected small businesses. In exchange for their investment, they expect equity and a say in the direction of your business.
Venture capital firms seek to invest in businesses that have the potential for rapid growth. The ultimate objective of venture capitalists is to prepare your company for sale to a larger company or for going public. This is important to remember when seeking investment because it may not align with your business goals.
#6. Connections in Your Industry
Prospective investors can be found everywhere. All you have to do is find them. Networking opportunities are not limited to new businesses. You may meet other entrepreneurs who are the ideal investors for your company.
- Other Companies
You probably already know people who work in a similar field to yours. Perhaps you can contact them to see if they have any recommendations for potential investors in your company. Attend industry trade shows with your investor pitch prepared.
- Schools
Schools that provide certificates, diplomas, or degrees in your field may also be a good way to reach out to potential investors. This is because the professors who teach the programs frequently invite guests to speak on specific topics. These guests are usually experts in their field.
#7. CrowdfundingÂ
Crowdfunding websites are online platforms that assist entrepreneurs in raising capital. Individuals and businesses can launch crowdfunding campaigns to attract a large number of investors.
This is a relatively new way to find investors who will provide the initial funding to get your new business off the ground. People who are passionate about a new product or service contribute to startup funds. Each crowdfunding campaign has a target amount that must be reached by a specific date. Otherwise, you will not receive any of the funds promised.
What Qualities Do Investors Look For?
When deciding whether to put their money—or the money of their company—into another business, investors consider a variety of factors. Examples include:
- A unique concept or product. Is the product or idea one-of-a-kind? If not, are the features distinctive? If not, why is this going to sell?
- Excellent business plan. Is market research and product execution part of the plan?
- Experience and education. Is the management team educated and experienced enough to achieve the goal?
- Financial information. This includes all hard data such as cash flow, expenses, profitability, and projections.
Details, Details, Details
Your investors will expect you to answer all of their questions about your business plan and performance. You must be prepared to discuss your failures and vulnerabilities, as well as your successes thus far.
This gives the investor faith in you as the founder and increases their likelihood of trusting you with their money. You should have your balance sheet and income statement and be able to explain exactly what you plan to do with the money you’re investing. The business investors will also want to know how they can get their money out of the business once it is time.
What Is a Reasonable Return for an Investor?
The amount of ownership given to an investor in a company is frequently directly related to how much money that investor is willing to put into it. Because every business has so many different variables, determining a percentage is impossible. Every transaction is unique.
Keep in mind, however, that if the percentage is too low, the capital outlay will not be worthwhile to investors. Offering 5% to business investors is likely to be ineffective because it provides them with little return even if the company is successful. It will also take them a long time to recoup their initial investment, let alone begin to profit. To attract investors, show them where they can get a good return.
How to Get Angel Business Investors in the United Kingdom
Fundraising can be a full-time job, and attracting angel business investors to your small or start-up business is dependent on thorough research. So, where do you look for angels? If you don’t have access to a personal network, the internet can be a lifesaver. A list of angel investor websites where you can find UK angel investors is provided below
#1. Delete Studio
There’s something for everyone, from motivational crowdfunding videos and detailed fundraising courses to highly customized investor research and pitch deck assistance. Drop Studio is a company that has helped businesses in various sectors design, manage, and optimize campaigns that have raised more than £50 million.
#2. UKBAA (UK Business Angels Association)
The UK Business Angels Association (UKBAA) is a UK-based angel and early-stage investment organisation with over 650 members who invest more than £2 billion each year. They include angel groups, early-stage VCs, equity investment platforms, family offices, universities, and accelerators, as well as high-net-worth individual investors.
#3. Investors in ACF
ACF Investors is a venture capital firm that manages the Angel CoFund, a syndicate of angel investors who pool their funds to invest in early-stage businesses in the United Kingdom.
#4. Network of Angel Investors
The Angel Investment Network is a global network that connects angel business investors and small or start-up businesses. They have over 287,000 angel investors worldwide, according to their website.
Angel Investment Network has a variety of membership options for startups: you can post your pitch deck for free with limited features, or you can pay £149 to £2,499 for a 90-day listing.
#5. The Syndicate Room
Syndicate Room is an investment fund that began in 2013 as a crowdfunding website. In 2019, Syndicate Rooms transitioned to a VC fund format, investing alongside top angel investors in startups with investments ranging from £400,000 to £5 million.
What Documents Are Required by Investors?
Documents include
- Investors’ Consent
- Certificate of Stock
- Letter of Agreement
- Shareholder Contract
- Stock Purchase Contract
- Memorandum of Private Placement
- Subscription Contract
- Memorandum of Offer
How Do You Go About Approaching an Investor for Funding?
How to Approach Investors and Pitch Your Idea in 5 Steps
- Give a Detailed Introduction
- Maintain Your Focus on the Advantages
- Let the figures speak for themselves
- Consider the Dream Team
- Request Their Opinion
What Three Financial Statements Are Required by Investors?
The income statement, balance sheet, and cash flow statement are all required financial statements. These three statements are useful tools for traders to use when analyzing a company’s financial strength and providing a quick picture of its financial health and underlying value.
Where Can I Find Financial Statements for a Company?
SEC: Financial Statements and Reports Users can search the EDGAR database at www.sec.gov/edgar to find companies and filings, all SEC-registered companies in a specific state or country, or a specific Standard Industrial Classification (SIC) code. EDGAR archives, both current and historical, can be searched.
How Do You Read Financial Statements in the United Kingdom?
A financial statement is divided into three sections: the income statement, the balance sheet, and the cash flow statement. The balance sheet summarizes the company’s assets, liabilities, and equity, whereas the income statement covers the company’s revenues and expenses over a given period.
Conclusion
Learning how to get business investors for your small or start-up business can be difficult, but good advice and preparation can help. Consider all of your options, such as family and friends, angel investors, business loans, and crowdfunding platforms. Remember that investors will want to see proof of concept and growth potential, so include all of this information in your business plan.
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