Those who have come up with a promising business idea, but who lack the financial capital to implement it, need to look elsewhere for investors to obtain the money required to get their business started.
Furthermore, the amount of money required to begin the venture can often determine what source of financing is most appropriate, in addition to how much control over your business project you are willing to relinquish to a funding source in order to obtain their financial backing.
Creating a Business Plan
The logical first step in finding investors for your business project is to create a detailed plan that you or your supporters can show to potentially interested sources of funding. A more professionally written business plan is optimal since you really want to make a good first impression to help assure the best chances of success.
Although no particular formula applies, business plans typically start with an executive summary that briefly explains the business concept and its likely returns.
Then follows a more lengthy business and product description, plus a detailed plan for how the business will be managed and its products brought to market.
Friends and Family Investors
Most people who wish to find investors to help them go into business will first approach their more affluent friends or family members for financial aid. Such funding is generally easier to get, especially if the potential lender has confidence in your ability to succeed.
Nevertheless, such familiar people might not have hundreds of thousands of dollars in cash to offer you, if such hefty sums are required.
Also, it might seem best both for your business and your relationship to keep familiar lenders at arm’s length when it comes to running your enterprise.
If you do decide to receive funds from friends and family investors, you should have your agreement clearly and formally memorialized in writing to prevent misunderstandings from arising that might harm your relationships with them.
If friends and family cannot finance a project to the required degree, start up business leaders will often turn to their local financial institution for assistance. Nevertheless, many banks seem reluctant to lend to smaller business operators, especially in difficult financial times.
To help you get around this reticence, the U.S. Small Business Administration or SBA can provide qualifying borrowers with backing for a bank or credit union loan in the form of a loan guarantee.
Another popular financing option involves seeking out high net worth individuals who might be interested in investing in your business idea.
Often called angel investors, such people typically exchange their cash in return for an equity investment in the new venture, although they are rarely interested in taking much control of the business.
Venture Capital Companies
When large amounts of capital are required to make your business idea a reality, and you have exhausted other sources of cash, you may want to approach a venture capital company for seed money financing.
Most venture capitalist firms are not interested in making small loans and usually require more control over your business.
They typically consist of limited partnerships where investors have pooled funds to be made available as start-up capital to those with especially promising business ideas.
Although venture capital financing has become less accessible in recent years, it still might be attracted to a good business concept promoted by a talented individual or team.
Nevertheless, you will probably need to be prepared to offer the venture capital company preferred stock in your enterprise, as well as a position on its board of directors and possibly even in its senior management group.