How can you ensure you pick the right investor for your business?

As an entrepreneur, finding the right person to invest in your business venture isn’t just about how much money you can get. Your choice of investor could either help you fulfil your dreams or destroy them altogether.

This guide will show you how to find investors for your business that will help you achieve your goals. We’ll cover:

●        Where small businesses can find financial backing

●        How to find the right investors for your business

●        How to proceed once you’ve found them

Where small businesses can find financial backing

 There are a few ways to find the right investors for your business. We’ve listed the main options below.

Ask family or friends

Asking your family or friends to invest in your business may be the easiest and most cost-effective way to secure funding. However, before you ask them, decide if you want them to loan you money or invest in your business.

A loan may be easiest for both sides since you can simply pay it back in instalments over time. An investment means your family member or friend will own part of your company. If they invest, you might be able to get money upfront, but instead of paying them back in instalments, the investor only gets their money back when your business becomes profitable.

The downside to family and friends becoming investors is that if the business fails and their money is lost, it could strain your relationship.

Apply for a small business loan

Many UK high street banks offer introductory business loans (learn how to get one here) to help you get established. These may be either secured or unsecured loans.

●     Secured: backed up by the security of a valuable business asset like your business premises or a vehicle. If you fail to repay the loan, the lender can then seize the asset as repayment.

●     Unsecured: doesn’t require security, but lenders may ask you to sign a guarantee where you’ll be personally liable for the debt. Alternatively, you might be asked for a guarantor who will take on the debt if you can’t.

You can also apply for Government loans, which offer fixed 6% interest rates and free mentoring for up to 12 months when you begin trading. The Department for Business, Energy & Industrial Strategy has a resource hub detailing business support in your local area, from financing to operations advice.

Consider a private investor

You can also choose to approach private investors known as ‘angel investors’ or ‘venture capitalists’ who buy shares (equity) in your company. These investors usually aim to collect dividends (profit shares) or sell their shares if and when your business is successful. Unfortunately, sole traders can’t use this form of investment since they don’t have shares or equity to sell.

While this option gives you quick access to funding, it’s critical to communicate your value and business plan to attract the right investors for your business. You’ll need to be careful not to give up too much ownership in your company, or you risk losing control of it.

Try crowdfunding

Another option that’s becoming increasingly popular is crowdfunding. Platforms like Indiegogo, Kickstarter and SeedInvest are spaces where new entrepreneurs and innovators can propose their ideas to patrons for financial backing. In return, patrons often gain early access to the business’s product or service. Unfortunately, there is no guarantee that you’ll be able to get funding this way, so it’s still a good idea to consider other options.

How to find the right investors for your business

To help you find the right person or company to fund your business, here are some things you need to consider:

Can they fund your business?

Raising money is challenging enough as it is for entrepreneurs, so the last thing you need is to partner with an investor that is also short on cash. If you see a venture capital firm that hasn’t made any new or follow-on investments in the last six months, it’s possible that they’re running out of money and struggling to secure the next fund.

Instead, you want to look for investors who are doing well financially and actively making new investments, meaning they’ll be able to hit the ground running.

Do they offer repeat rounds of investments?

Finding new investors every time you need funding is time-consuming and forces you to sell more ownership of your company. Additionally, if there’s less ownership available, your business could become less attractive to others in the future.

That’s why it makes more sense to find an investor that already offers repeat rounds of funding, meaning that they’ll invest further money into your company if you need it at a later stage. 

How much influence do they have in your industry?

Influence can sometimes far outweigh the amount of money being invested. In particular, private investors should also support you with resources and expertise around HR, marketing, business planning and more.

An investor who has a lot of knowledge and influence in your industry is more likely to have access to contacts and networks that will help you grow your business. 

Do they share your outlook and values?

Since any investor is likely to influence your business’s decisions, it’s important to make sure their values align with your own. Be clear from the beginning about what’s important to you and where you want your business to go to ensure that you and your investor are on the same page.

Do they believe in your company’s mission and that you’re the key to making it happen? You want an investor that will give you room to do your best work instead of trying to sabotage you or push you out. Make sure that whoever you decide to partner up with shares your values and vision.

Keep your finances organised with a simple app

Keeping on top of your business’s finances is essential if you’re trying to secure funding from any investor.

Countingup is the business current account and accounting software in one app that is helping thousands of UK business owners to manage their finances.

The two-in-one app gives you real-time profit and loss insights, the ability to create invoices in an instant, and automated bookkeeping features, saving you hours of admin time to focus on running and growing your business. 

Find out more here.