When starting a small business, you most likely will need to gain some initial funds to get it off the ground. Unfortunately, raising money is one of, if not the most, hardest parts of starting a company. One of the best ways to do this is by working with angel investors. Angel investors are different from venture capitalists by way of acquiring the venture capital from an individual investor’s personal money. These angel investor individuals look for companies competing in an industry where they have a high-growth potential to succeed. There are multiple ways to find these angel investors and get them on board. Here are the top 5:
1. Family and Friends
This will and should generally be the first outlet you utilize to find your initial investors. Going through family or friends for investors will be the easiest way as they will be trusting of you with their money. Family and friends are already aware of your drive for the business you are starting, giving you credibility and minimizing any doubts your investors may have.
Statistics show that the odds of success gaining angel investors outside of your family and friends network are only about 3-5%. This doesn’t mean you shouldn’t attempt to utilize your other options, it just suggests you will have to work much harder to show them how passionate you are about your ideas and business plans. Read on to points 2 through 5 to learn about other ways you can jump start your small business with the angel investor search.
2. Angel Groups
Most cities have one or more local angel groups and around 800-1000 organized angel groups exist in the US. These groups can meet quarterly or as often as once a month. Depending on the frequency, you may have to wait your turn for them to choose you to present to the group as a possible investment in a formal interview process. Think of it as something like the television show “Shark Tank” that has been gaining large exposure lately. Also, some groups may make their decisions collectively, such as all members of the angel group board must be in favor of your business, or they may only require one or two members to be interested to invest individually. This is something you should research before presenting your business as you usually have more luck when engaging with the angels on a personal level. As I mentioned previously, angels are dealing with their own personal money so they are more prone to invest if you connect with them personally. You could do so perhaps by offering them an advisory role in your company or a way to work alongside the business.
Finding angel groups is not an easy task, but once you get access one of them, it usually opens the door to up to 50 individual angel investors, giving you great odds. There is also such a thing as venture capital clubs who actively look for deals to invest in and want to hear from entrepreneurs looking for capital, which is basically the same thing, but angel groups do not like the formality of these clubs and instead use more of an informal approach.
3. Small Business Development Centers
Another way to attempt to grow your new business is to search for local small business development centers in your area. Through these you can get connected with investor lists or have the centers recommend prospect investors. They may even refer you to some of the local angel groups we discussed in option number 2. These development centers offer training, advising, and plenty of other assistance you may need to help your new business plan grow. They are one of the largest federally funded business assistant programs in the nation.
According to the U.S. Small Business Administrative website, www.sba.gov, SBDCs provide all types of services through professional business advisors such as: development of business plans; manufacturing assistance; financial packaging and lending assistance; exporting and importing support; disaster recovery assistance; procurement and contracting aid; market research services; aid to firms in all stages; and healthcare information. These extremely organized centers are there to promote economic development and support local small businesses in their communities, so be sure to visit the website to find the center nearest you and utilize this helpful tool for yourself.
4. Economic Development Entities
Alongside these small business development centers, there are also economic development entities in your state. Generally economic development entities have 3 categories: public, private, or a public-private partnership.
Public entities are local government operated and widely used for their use of investment tax credit programs. They are able to decide if your business is worthy of investments from the citizens’ tax dollars to enhance their community. They also have more authority over land use and the ability to offer incentives to firms. These also include the option for state grants which could be a massive step to get your new business off the ground.
Private organizations are the non-profits and business groups. These have more flexibility with what they can invest in and are much more connected to the community when it comes to making their decisions; however, they will have less access to money for funding these decisions over the public, government entities.
Then there’s the public-private partnerships, which has some of the advantages of both sides, but of course, can also be more difficult and stressful when dealing with two sets of rules. If you are searching for an economic development entity in your area, you should start by going here: http://www.ecodevdirectory.com
Finally, to expose yourself to thousands of potential investors online, there is a global movement occurring where investors are going online to find their next projects, such as Fidelity or E-trade started years ago. By using this outlet you are acquiring the largest outreach in the easiest way to find investors. Unlike the first four options in this article, crowdfunding is the only way to reach investors not only in your area but worldwide.
Equity-based crowdfunding is becoming more and more popular because of the potential return on your money. When you provide monetary capital on an equity-based crowdfunding site, you become a shareholder of the company in return. This model is more appealing to a venture capitalist that has a larger amount of money to invest, generally speaking of around $100 thousand up into the millions, while the average amount invested via angel groups is around $250 thousand. This investment crowdfunding method has become such a phenomenon lately; it is causing so many new sites to pop up that you may struggle with which crowdfunding site to use. While there may be hundreds of crowdfunding sites available, the main question is which one has the most worthy investors in their network?
EquityNet.com has been live since 2005 and is the original patented crowdfunding platform. EquityNet features profiles of over 800 investors and investment groups providing access to 20,000+ individual investors and has helped entrepreneurs across North America raise over $207 million in capital. Not only will they help you raise the money you need, they will also help you finalize your business plans and provide patented analytics to help keep you informed and organized so you may optimize your new business in every way necessary.
Just as headhunters used to do what Careerbuilder.com does today, what local classified ads used to do what Craigslist.org does today, online investment crowdfunding sites such as EquityNet.com are the new future of venture capitalist firms. If you are an entrepreneur and you have yet to jump on this train, the odds are against you and your new business.
Good Luck to all the entrepreneurs out there, hopefully this shed some light on your new journey to accumulate the funds you and your brilliant ideas need!