Find Investors
Investors are defined as “someone who commits capital in order to gain financial returns”. This is very important to understand, why? If you don’t look at an investor from their point of view, you are unlikely to ever have anyone invest in you and your business.
An investor is looking to “gain financial returns” from their investment. They aren’t going to invest money in a business just because the business owner says: “it’s a good idea”, “no one else is doing it”, “I know what I’m doing”, or a slough of other commonly heard phrases.
An investor is going to look at several business deals (potentially hundreds or even thousands) before they make an investment. I personally have 5-10 deals come across my desk every week. Everyone has the next greatest business idea that is going to make millions. So if you want to find investors you need to set yourself apart from all the other business deals they look at.
Questions When Finding Investors
Before you determine how to set yourself apart you need to decide if finding investors is really what you want to do. Some questions you should consider when making this decision are:
1. What am I going to do with the money once I get it?
2. Do I want someone else owning a piece of my business or do I just want to borrow the money?
3. How much of the business am I willing to sell?
4. How am I going to value my business to determine what percentage I would be willing to sell?
5. Do I want someone else looking at my finances every month?
6. Do I want someone else telling me how to run my business?
7. Do I want someone telling me what I can spend money on and what I can’t?
8. Will the company be better off by having an investor?
9. What is my exit strategy for the business?
10. How soon do I want to exit from the business?
These are all questions you should have answers to. Once you find investors some questions they are likely to ask you mostly revolve around you and your background as well as the financial numbers of the business. It isn’t easy having someone tell you what you can spend money on and what you can’t once you have started your own business. Entrepreneurs typically set-up their own business so they don’t have to take orders from someone else, but with an investor you may have to, depending on how the deal was structured.
Where do you find investors?
It depends what level of investment you are looking for. If you are looking for less than $500,000 in capital for your business you will likely look to the three Fs (Friends, Family and Fools). The next
level of investors are Angel Investors. Angel Investors typically look for deals from $50,000 to $5,000,000. After $5,000,000 you are looking Venture Capital money or institutional money.
Angel investors are a great resource for most small businesses because most of these investors are entrepreneurs themselves. They typically have started their own businesses and done well enough that they now use some of their money to invest in other ventures. They understand the amount of time and energy it takes to start and operate a business. This is the reason they would rather find someone they believe has the capabilities to bring a business to the next level and invest in them.
Understand what I just said, they invest in the entrepreneur, initially. The business could be the best idea in the world, but if the person running it is a bonehead, very technical term 
, they aren’t going to invest. You need to sell yourself when finding investors and talking to an angel investor as much as selling the business idea.
VC vs. Angel Investor
Angel investors will invest in many more deals than venture capitalists, yet most entrepreneurs think V.C.s are where they need to find investors when it comes to raising money. The reality is that a very small percentage of deals a venture capitalist sees will ever get funded compared to those seen by angel investors. That isn’t to say Angel Investors are just dumping money into deal after deal they are presented. Angels will invest in more deals traditionally because they invest smaller amounts and they work with other investors to pool their money to spread out the risk.
So where can you find angel investors?
You can find lists of angel investor groups all over the country right on the internet. However that doesn’t mean you will ever have your deal seen by one of these groups. These are close groups that traditionally look at deals presented to them by one of the members of the group who found the deal from someone they know. Remember they are investing at this stage in “you”, so they feel more comfortable when they know the person or someone they trust knows the person.
The first place I would suggest to look is the Angel Capital Associations website and then google “Angel Investors Groups [local city]“
David Gass
P.S. – Please leave comments and questions for me to answer for you.
Crowd Funding Book by David Gass
17 comments
I liked your short of the do’s and don’t This is helpful in what I might be doing… I do prefer to always stay debt free,,, in the past I did sell part of my business so to stay debt free
With angel investors you have the option of taken on debt or selling equity, that is one nice thing for those of us who don’t like taking on debt.
Great post David – I’m very interested in working with angel investors and am too scared to really make the move to presenting my company to them. I’m a one person operation and a stay-at-home mom. I’m not a big company or have huge revenues. BUT with a little guidance I really think what I’m doing could catch on around the country. If Ms. Fields could do it, why not me?
Susan – I love your attitude. No matter the size of the business or what stage you are at, there are potential investors for you. The key to having an investor work with you isn’t just about the business itself, it’s about you and your attitude and passion for the business. Three things one main angel investor says he looks at when choosing to work with someone: Passion, Focus and Team. The team doesn’t have to include the people you have on staff, it can include others that you have on a advisory board or consult with. All three Passion, Focus and Team are critical though.
I have had several financial setbacks due to over extending myself in a bad market. I am starting to climb back out of the hole and need additional money to put the business into gear. During the downturn in the economy my mortgage business dried up. Now I have been able to fund loans again and I am wanting to get my business back to running. Is their any type of angel investor who would have any interest in a situation like this.
I couldn’t say for sure. It’s tough to say with such little information. However, if you have a business that’s viable, making money, growing or has the opportunity to grow substantially and I’ll you need is a little capital, I’m sure there are investors for you. You’ll just need to be prepared to present to them and have what they are looking for in terms of returns.
I have been researching my ideas for a sports bar for 7 years, but traditional financing is not an option. I have a great sales pitch, but not sure how my ideas would appeal to angels.
There’s only one way to find out. Put the plan in front of one. You have nothing to lose by doing so and a lot to gain.
Mr. Gass,
Are the Angels and VC’s strictly equity investor or do they deploy debt as well? Thank you.
Yes, angel investors work with equity, debt or a combination of the two. It depends on the deal and the investor as to what can be negotiated. Keep in mind when working with Investors it’s like a lot of things – you can negotiate and believe me – many of them love to negotiate. They’ll respect you more for it.
Mr.Gass,
Will the angel investors or vc’s take a chance on me if my prior company went to bankruptcy. the bankruptcy was my ex-partners doing. I have started a new company and I need cash to get the company off and going like I once did. I had a very good company at one time.
If you have experience regardless if it’s good or bad -that’s a positive for you. In some cases investors like see someone who failed in a business prior. There are just as many lessons to learn in the failure as there is in the success.
I’ve been thinking of starting my own business for a long time, and now is the best time (isn’t it always). Bankers don’t want to talk to someone they consider small potatoes. Government programs such as SCORE ae no help and very discouraging. What is the best route if you don’t have a rich uncle? The business plans that I have seen are comparable to a ponzi schme..promising big returns and usually falling short
Wow, small question that needs a big response. I believe you’re right, now is a great time to start a business. A lot of businesses the last couple of years have had to shut their doors, which means in some cases there is a higher demand then their is a supply for the service or product. Where to get financing and money is probably you’re next question. There are several options that require you to have excellent credit to get a large loan or line of credit. I would encourage most entrepreneurs however to not go out and get a big loan or line of credit to start out. It’s best to bootstrap the business and let the cash flow from the business fuel the growth. Yes, you start out a bit slower but it keeps you thinking about every dime you spend that way. I’ve built all my businesses this way and it’s worked out pretty well.
Wow, it’s interesting to read you had such a bad experience with SCORE. When we were starting our first business, we actually had a great experience through their program.
Our mentor/adviser was a retired businessman that was more experience with classical business models, but provided quite a bit of help in providing an alternative point of view and looking at our business through a different lens. He helped us setup a mock board meetings to help us practice our presentation skills and to help us better define our business goals.
It was quite a while ago, but looking back on it I thought it was a great experience overall.
Is quite good to hear from other business people when it comes to money in pushing up their business here in Ghana our economy is taking off on a fast passe because of the oil exploration going on.My company needs international or local investor to push business up further so to maximize profit hope to find one very soon because is now!
I think a lot of people who turn to obtaining investors come into it pretty surprised. Like you said in the questions to consider when finding investors, you are opening your business up to others and may have to do things you do not want to, just because your investor(s) may want you to do it their way.
On the other hand, from the investor’s side, they are merely making sure the money is being spent wisely and hopefully they have a great ROI.