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Why would you need investors in your small business?
An investor can make a difference that often leads to success for a small business or an inventor looking to promote a distinctive idea or product.
Imagine having a product or unique business that is a Rockstar in the community and you are finding it nearly impossible to keep up with the demand for what you do. The very thought of adding more locations might sound like a slow death sentence by overworking. An investor with the right connections could be the answer to growing your company without increasing your workload. Perhaps that hot sauce your friends and neighbors have promised their first born in exchange for the recipe needs a steady money supply to become a commercial product. This too could happen with the right investor.
For Steve Ells, founder of Chipotle restaurants, family and friends were the investors he sourced the eighty-five thousand dollars he used to open his Mexican grill. While taco shops are nothing new, Chipotle’s fresh grill inspiration came from street vendors in San Francisco. Even today new and interesting taco shops are consistently opening. However, it was Ells’ concept of promoting naturally grown foods that saw it generate seven plus billion dollars of revenue in 2021. That is a lot of tacos and burritos.
How do you find investors?
There are many different types of investors for a small business owner to consider. Above all, it comes down to research and finding the right fit for your company. Here are a few options.
Somewhat like a bake sale to help a sick or needy child, this type of funding can also be sophisticated. A concept that relies on a large group of small investors, often the company provides incentives or perks in return. In equity crowdfunding, private company securities are offered to a group of several investors in return for financial backing.
Bootstrapping, a method of finance by reinvesting your company’s revenue, is how Mrs. Field’s grew her cookie business in the nineteen-seventies. With the concept of selling freshly baked homestyle cookies, they opened several stores and eventually started franchising. Along the way, they purchased other companies offering franchises for those stores as well. Relying on revenue from your company may not be the best for long-term growth. However, investors tend to be keen on businesses willing to put up their own money as part of any potential investment.
-Friends and family.
Those who know your business as well as you do, are often friends or family members. While this may be less complicated than sourcing traditional investors it can come with high expectations that may jeopardize the relationship. If you should decide this is the only method of fundraising, treat the potential investors as you would any other professional. Provide a portfolio and a business outline. Define the when, where and how’s of returns on the investment. Make certain your relationship is sold beforehand, otherwise this may not end well.
Angel investors are not from heaven. They are wealthy investors often in your community that are willing to put money into a new business in exchange for equity. Network close to home to find willing angel investors. Go to local startup events, chamber of commerce meetings, even fundraisers. Also, check the internet for places like these:
- Angel Investments Networks
- Pipeline Angels (for women-owned businesses)
- Angels List (for tech investors.)
Venture capital is a private equity form of investment, often sourced during later stages of a grown business startup. Venture capital firms often look for massive growth potential in a company. Think Chipotle Mexican grill after the friends and family investment. Later as the company grew, it was necessary to secure venture capital to finance further expansion across the country. Do your research. Connect with Venture capital companies on LinkedIn or attend a pitch event.
What are investors looking for?
While not all investors have the same end goal, a good return is often a common interest. Otherwise, investors often look for the following.
- A company or industry they are familiar with
- Solid data and a strong business plan
- A management team they can get behind and believe in
- A unique concept or idea with a large market and competitive advantage
- A growing company with momentum and solid footing in the marketplace
- An idea that will generate cash flow with a clear investment strategy
Pitching your business to investors
A business pitch is a persuasive argument to convince a person or investors to invest into your business. Pitches can be as short as twenty second or up to an hour so long as you keep the investors interested. A presentation should include:
- Correct information including the value of your proposition
- Specific benefits of your unique product or idea
- What advantages you have over your competitors
- Target market, demographics and why customers should choose your product
- Sales strategies and revenue projections
- Team members
- Exit strategy
- Amount of funding needed
A great business pitch tells a story. Much like the stories of Steve Ells and Mrs. Field found earlier in this blog, these are things easily remembered. In telling your story, draw upon your own experience tying in how your business resolved a relevant problem or solved a need.
Be sure to provide contact information. Should you pitch to an audience, this will help them find you.
Remember to plan for various situations. Slow down, be confident and practice, practice, practice, so that your pitch sounds professional. Be respectful and prepare for difficult questions. Often investors are looking for a resolution to a problem that will make them money.
Be sure to follow up afterward with a brief email or phone call that reminds them of you and your product. Also ask for feedback and correct any issues for any potential future pitches.
Do you own a small business and would like additional investors? We can give you the resources you’ll need to pitch your business to investors. Please contact us at the Small Business Development Center – SBDC – Serving Paris area: Lamar, Hunt, Hopkins, Delta, and Red River counties.