By Avery T. Phillips
You never thought it would happen, but your new business is actually doing really well. The business is getting close to turning a profit, it’s growing at a quick rate, and you’ve even hired a few employees. Yet, you’ve started to notice that keeping up with demand is becoming hard. The company needs to expand. You’ve decided you need to hire more employees, get your own office space, and upgrade different parts of the business to keep up with your ever growing demand.
The problem is, you don’t have the money for it. Yes, the business is profitable but just enough to pay for your current employee salaries and have enough money for you to live. There isn’t enough money to pay for all of the things you need to do in order to keep the business growing. You could get a small business loan from a bank, but that just means extra debt you have to worry about. The best solution in this situation is to find some reliable investors.
Why Getting Reliable Investors is Important
The biggest reason your business might need investors is because you need a big chunk of money, fast. These resources can give you the means to expand your business in order to meet demand or fix problems you’ve encountered. Often, if you don’t get this money, it means you hit a barrier in the business and can’t grow any further because raising the money for expansion is hard to come by. That means not being able to meet further demand or get into new markets to sell to.
In exchange for this massive amount of money, the investor owns a part of the business and get regular payments from it. The larger you grow and the more money you make, the bigger their payments get and the more their share of the company is worth.
Since they are going to be a major part of your business, it’s important to find reliable investors. Nothing is worse than finding a person who says they will invest thousands of dollars in your business and then back out at the last minute. That’s money that you planned on having, and not getting it at the right time can spell disaster.
The downside to getting investors, though, is that in the future, you will need to give them money for their shares. Ownership draws is the money that gets paid to the owners of the company, including investors. Investors have a right to the money you owe them, which could put financial strain on the company in the future if things go bad.
Reach Out to People You Know
Before you start making a Craigslist post looking for investors, start by looking through all the people you know and trust. This could include indepently wealthy family members, friends who are also business owners, or maybe even previous employers. These are people that you trust because you know them and they are less likely to leave you hanging. They’re also more likely to trust you with the money because they know you and hopefully can place their belief in you.
Family and friends, while alone might not be able to be large enough investors, but together can get you enough money. If you’re looking to get $50,000 and you have 50 friends and family that could each invest $1,000, you’re good to go. Then, each person could own a small share in the company which they could later sell back to you in order to get their money back plus more. It’s almost like a local crowdsource for funding with people you know.
Getting an Angel Investor
Since an investor’s success is tied to the company’s success, some will want to do whatever they can do help. An angel investor is somebody who has already built a business, is experienced in the industry, and can help mentor you.
It’s not easy finding an angel investor, but there are some online resources like the Angel Investment Network that can help. It’s also worth checking with your local Chamber of Commerce to see if there is a local angel investment group in your area. Especially if you are new to growing a business, finding a mentor could be incredibly valuable. Not only can they provide money, but they can also give you access to their business network and help you make needed connections.
The downside to an angel investor is that they often want a large share of your company for their time and investment. If your mentor is going to give advice, they will want to see it happen. Some angel investors might even demand to become a partner in the business by receiving 50 percent shares in the company.
Avoiding Predator Investors
Not everybody in the business world is honest, and that includes investors. Some are looking for the chance to take advantage of your need for money and squeeze you dry in the long run.
Just like with any type of predatory lending, there are some signs you need to watch out for. If they present you with a contract for the investment, have a good lawyer look it over for loopholes and clauses that could hurt you in the long run. If something seems strange, ask for clarifications.
One goal for predator investors is to gain controlling interest in your company. That can include posing as multiple different investors who then sell their interest to a singular person, or conning you by gaining your trust and giving you more and more money while slowly growing their shares.
Find People You Trust, Do Right By Them
Trust is a two way street. If you are looking for investors you can trust, you also need to be trustworthy. When approaching potential investors, have a detailed and actionable business plan, as well as what their money would accomplish. A good presentation can show that you are serious about their investment and won’t squander the money.
Don’t just meet with investors once. Building trust takes time, so make sure to have several meetings with them. That way, you understand what they expect from you and vice versa.
If you do your work and search out reputable investors, you’re bound to get the money you need. Take your time and make sure everything is clear before you accept the money. Rushing into taking on investors could lead to problems or mistakes in the future.
Avery T. Phillips is a freelance human being with too much to say. She loves nature and examining human interactions with the world. Comment or tweet her @a_taylorian with any questions or suggestions.