As a startup founder or small business owner, you may depend on outside capital from an investor to reach your business goals, but it can be tricky to find the right one. If you feel like you have a great business idea but need some operating capital to turn that idea into a reality, finding an investor can seem like the logical solution. And it probably is the best way to go, but how do you find the best investor for your business?
It may not seem like it when you are desperate for cash, but not all types of investors are equal. Just because an investor has the money to invest and is interested in your company doesn't mean they are a good match for what your company does or what you need. In the long run, small business owners will be more satisfied with their choice of an investor if they find the right one, not just someone willing to write a check.
When you accept money from an investor, that relationship will help shape your company's future. Therefore, you should approach that decision with the same kind of systematic evaluation you would for any other significant business decision. Do your homework, gather intel, take the time to research potential investors to see if they will fit well with your vision, and can provide more than just capital. Here, Ferrari Energy talks about what entrepreneurs need to know about finding an investor.
Determine what you need
Take a critical and honest look at what you want to achieve to help you analyze what assistance a potential investor may provide. For example, do you need more contacts in the industry or a connection to business leaders? Even if it's uncomfortable, uncover what you truly need to be successful. The answer is often more than just additional cash.
It's crucial to find an investor that has experience in your field. For example, suppose you team up with an investor that only has experience in high-profit quick cash-generating retail operations. In that case, they may not be patient enough to wait for the long-term results of the commercial construction market, for example.
Where to look
To find an investor in your field, try joining a startup launch platform or finding an Angel Investor Network that other companies in your industry have used. Angel Investors are generally looking for early-stage companies to build a relationship and provide valuable guidance to help the new company grow.
Private equity firms are a more traditional path for business investment and might be a better match if you're not looking for guidance, advice, or networking. A private equity investor will be more interested in the potential for a return on their investment than helping to guide your startup to success. “If you feel you have the connections and partners you need, this could be the best avenue for you,” stated CEO of Ferrari Energy, Adam Ferrari.
Whether you are looking for an angel investor to guide you or a private equity firm to infuse capital but stay at arm's length, don't get discouraged when (not if) you get rejected. Rejection only means that this was not the right match for your needs. Don't take it personally. Investors are generally sophisticated businesspeople, and they know what relationships are likely to succeed and which are destined to fail. Just keep looking; the right investor for your company is out there.