How to find investors is a question every entrepreneur with a small business has when they’re looking to scale their organizations. Take Carry1st, a mobile gaming company based in South Africa, for example. While the business has seen tremendous success publishing, producing, operating, and marketing games for Africa’s large youth population, the founders needed to receive more funding to grow and drive impact at a faster rate. In January 2022, Andreessen Horowitz, a venture capital firm, led a Series A extension, helping Carry1st secure $20 million in funding from investors like Google, Nas, Chipper Cash, Yield Guild Games, and Avenir. With the influx of cash, the company will “expand its content portfolio, grow its product, engineering and growth teams, and acquire tens of millions of new users.”
Having company investors can change your business and life. First, it provides additional capital for creating a more valuable, high-quality product or service. It also allows you to hire more team members, expand your reach, and drive transformational change quicker than you could alone. It can also lead to strong relationships with mentors who can introduce you to even more investors. For instance, this was the case for Melanie Perkins, co-founder of Canva, who raised over $200 million after forming a powerful relationship with investor Bill Tai.
However, if getting an investor was easy, every business would be raising millions and get valuated at a billion dollars. The truth is: Growing relationships with investors requires a lot of upfront work and creativity.
To strengthen your chances at receiving funding, find out:
- How to set yourself up for success before meeting with investors
- The top ways to connect with investors and raise capital
- Where to find investors
How to Connect with Investors
Investment money can come from a variety of different places. Where you get your capital largely depends on what stage your business is at. Also, consider how much control you want over your company. Learn more about each source of money below.
- Family and Friends: People who own early-stage businesses often seek investment money from those they have close relationships with, such as their parents, mentors, professional connections, and friends. However, asking those in your inner circle for capital can be risky should the business fail. Before seeking this arrangement, clarify what the terms and conditions are ahead of time.
- Governmental Agencies: The Small Business Administration (SBA) works with small business investment companies (SBIC). These private businesses licensed by the SBA can invest in small businesses through debt and equity. Loans usually range from $250,000 to $10 million, while equity usually starts at $100,000 and extends to $5 million. Learn more about this program here.
- Angel Investors: Angel investors are high-net-worth individuals (HNWI) who have the capital to help support your business. While it might sound like a great source of money, expect to give up between 20 to 40 percent of the company. This is a form of risk protection since most companies they invest in don’t have a long track record of success.
- Private Equity Investors: Equity financing works by raising money by selling shares for businesses that are not publicly listed. With this type of investment, PE investors will either buy stakes in the company or gain control over the business through a buyout. Similar to angel investors, those in PE firms are normally people who are considered HNWI.
- Venture Capitalists (VCs): A venture capitalist is a type of private equity investor. VCs typically invest in startups that demonstrate the potential for massive growth and profitability. Venture capital generally comes from individual investors, a collection of HNWIs, and investment banks.
- Accelerator Programs: Accelerator programs help early-stage startups launch and grow. This might include introductions to potential investors or mentorship opportunities. One of the most famous accelerator programs is Y Combinator, which has helped companies like Stripe, Airbnb, and Dropbox.
- Crowdfunding: Websites like Kickstarter, Indiegogo, and Crowdfunder allow startup owners to raise capital for their business ideas publicly. Unlike venture capital, crowdfunding collects money from many individuals who all give smaller-level investments in exchange for a promised reward.
After you’ve identified what types of investors you’re seeking, use the tips below to start developing a strategy for raising the capital you need.
7 Ways to Secure Capital
1. Work on Your Vision
Well-funded entrepreneurs don’t just throw out business ideas to investors. Business owners like Brian Chesky (Airbnb), Reed Hastings (Netflix), and Emily Weiss (Glossier), all know the importance of crafting a vision. Not only does it provide leaders with a roadmap for success—it shows potential investors you know what the finish line looks like for you and them. Additionally, when you describe how your company takes customers from Point A (having a problem they can’t seem to beat) to Point B (living a happy life because they are free from the issue), it inspires investors to join your cause.
For more information on crafting a vision, learn transformational leadership skills.
2. Have a Business Plan in Place
Don’t meet with investors until you’ve worked through a business plan. Failing to do so reads as unprofessional. As explained by Peter S. Miller for Florida Atlantic University, “When an investor is looking at business plans . . . his going-in assumption must be, ‘There’s enough wrong with this business plan that I don’t want to bother spending more time on it.’” While 97 percent of businesses that submit business plans don’t get funding, three percent do.
So, what sets those business plans apart from the others?
Miller advises entrepreneurs:
- Have a step-by-step strategy for success in place that includes growth plans.
- Demonstrate proven results.
- Highlight your team’s top talents and skills.
- Showcase patents that illustrate your product or service can’t be easily replicated by another company.
- Know your customer avatar—discuss who they are, their needs, and how the company solves their biggest problems.
- Provide information that shows where the company stands in terms of finances and scalability.
- Put together a pitch deck that clearly communicates where the business is right now, where you see it going, and how it’ll get there.
Get more tips for writing a business plan.
3. Forecast Outcomes
Before digging deeper into the question, “How to find investors,” predict what the outcome of an investment looks like. Investors want to know exactly what they’re signing up for before they give you money. When pitching, make sure you put this information in plain terms.
For example, “If you invest _____ percent in the business, it will result in XYZ.”
Give hard evidence that this will be the likely outcome. Drawing up graphs and statistics on your growth rate, financials, and projected earnings is one way to show investors your forecasting is legitimate. The more compelling your evidence is, the more likely it is you’ll secure an investor.
4. Connect With People Who are Influential in Your Industry
As Benjamin Franklin once said, “A good example is the best sermon.” The best way to replicate the success of those winning the game in your industry is by modeling them. To do this effectively, you need to be close to these people. This requires strategizing on building relationships with the top players in the game. Ideally, you want them to coach you, provide mentorship opportunities, and then possibly serve as a business investor.
To do this:
- Create a list of the most influential people in your industry.
- Find out what events they’re speaking at and attend them.
- Look for opportunities to connect with them on a deep level, such as joining the mastermind group they lead or going to a class they’re teaching.
- Show that you’re sincere, humble, and willing to learn from them.
- Work on building a solid relationship with them, so they have a high level of trust and belief in you. The more they trust you, the more likely it is they’ll invest in you.
- Demonstrate your work ethic. When someone can see you putting in the work, they’ll understand how dedicated you are to succeeding and serving others.
5. Grow Deep Roots When Networking
As Ivan Misner, author of Networking Like a Pro, says, “Networking is more about farming than hunting.” He means that great networkers plant seeds and harvest strong, trusting relationships. Think about it this way: Would you give a million dollars away to someone you don’t know? More than likely, the answer is “no.” If you want to find an investor, begin connecting with people on a deeper level.
To reap the rewards of networking:
- Focus on growing a real relationship with someone before asking them for money. People want to invest in the people they love and trust, which is why family and friends rank as top investors for new startup owners.
- Contribute to someone’s life in a significant way before asking them to introduce you to their personal contacts. You want to show you add value to others’ lives first.
- Grow trust by pouring into the relationships you’re growing. This might look like making introductions to your contacts, attending events that those you’re networking with are speaking at or hosting, and showing up to support them in their professional endeavors.
- Be active in your community. Act as a servant leader who betters the lives of those within your city or state. In part, you’ll be able to meet many people and potential investors who can help your business grow in the process.
- Take your networking several layers deep. For example, ask people who the most influential people they know are. Who are the most influential people those people know? Keep this process flowing to reach investors who have the capital to support your investment goals.
6. Launch and Promote a Minimum Viable Product MVP
If you’re hoping an investor turns up before you start a business, go ahead and make yourself comfortable—you’ll be waiting a while. Instead of doing this, launch a minimum viable product (MVP). As the name suggests, an MVP is the basic version of your product or service that allows you to figure out more about your customers so you can create a better iteration. Eric Ries writes in The Lean Startup, “As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.”
This allows you to put the least amount of resources into product development while still offering something desirable and of value to your audience. An MVP also demonstrates to investors that your business is more than an idea: it’s a tangible product or service that people are already buying for its core components. Additionally, investors want to know that your product has a demand.
Find out more about scaling a business with an MVP.
7. Join a Mastermind Group
Mastermind groups are one of the best places to find investors. This is because these communities are designed to facilitate personal and professional growth among groups of high-performers. For example, Thomas Eidson, Henry Ford, John Burroughs, and Harvey Firestone were part of a mastermind group called The Vagabonds. Together, they’d meet every summer to talk about their innovative ideas, problems within their businesses, and more.
As mentioned above, relationship-building is a vital part of getting investors on board with your company. People within business masterminds can introduce you to potential investors, invest in your company themselves, or even partner with you to create a joint venture.
To join a great mastermind:
- Ask for recommendations within your professional network.
- Search #mastermind or #mastermindgroup on sites like LinkedIn, Facebook, and Instagram to find groups of other entrepreneurs growing a business.
- Check Meetup.com’s mastermind group listings in your area.
- Meet with the group’s mediator before joining so you’re sure it’s the right fit.
Discover more about the dos and don’ts of mastermind groups.
Finding an Investor Requires Upfront Work
Investors won’t come knocking at your door unless you have put in the upfront legwork required to launch a successful business. More often than not, investors don’t want to help you build a company from the ground up—they want to provide supplemental money that grows what’s already working. The best way to attract investors is by creating evidence that proves your company is worth investing in. This means developing a product or service, marketing it to a distinct target audience, and generating capital on your own.
Another way to succeed in finding an investor is by studying the top entrepreneurs and business leaders of all time. Research how people like Steve Jobs, Elon Musk, and Mark Zuckerberg all got investors for their businesses. Look for patterns of success and formulate it into a plan you can follow. In addition to this, write down the setbacks they faced and how you can avoid these, too. Learning from others’ successes and failures will help you drive impact quicker. As a result, investors are more likely to notice you and your business.
Want to learn more about how to find investors? Check out this article on investing podcasts next.