While a number of entrepreneurs need access to funding at some stage of their projects, finding investors is easier said than done. Determining what type of investment you need depends on various aspects such as the type of business you operate as well as its age, market position, and performance. As a result, learning how to find investors needs to begin by identifying your options.
Entrepreneurs looking for funding have three basic alternatives from which to choose, and each comes with its unique characteristics.
Type of Investment
No repayment component, pressure to meet targets
You need to repay the debt with interest, pressure to adhere to repayment timelines
No repayment component, no repayment pressure
High risk for the investor in absence of collateral
Lower risk for the investor owing to collateral
No collateral and no risk for the investor and entrepreneur
Growth in capital
Typical involvement of investors
Little to no involvement of debt providers
No involvement of grant provider
Venture capitalists, angel investors, incubators/accelerators, crowd funding, friends, and family
Banks, non-banking financial institutions, and government agencies
Government agencies and private grant providers
Government Loans for Entrepreneurs
Entrepreneurs in the U.S. may think about getting loans through the Federal Small Business Administration (SBA) or the U.S. Department of Agriculture (USDA), provided they meet the required eligibility criteria.
SBA Loans for Entrepreneurs
A significant number of entrepreneurs across the U.S. benefit by getting SBA loans. Partly guaranteed by the federal governments, banks and other financial organizations provide these loans. The SBA helps alleviate the risk that lenders face, making it easier for entrepreneurs to get access to funding. The most popular loans that come from the SBA stable include:
- SBA 7(a) Loan Guarantee Program
- SBA 504 Loan Program
- SBA Microloan Program
- SBA Express Loan Program
The USDA provides loans and grants for entrepreneurs who focus on rural areas and the agricultural sector. Eligible candidates my use the funds they receive as working capital, for acquiring a new business, for modernization or repairs, for purchasing real estate, for buying machinery, and even for debt refinancing. Common USDA loans and grants for entrepreneurs come in the form of:
- Business and Industry Loan Guarantees (B&I)
- Intermediary Relending Program (IRP)
- Rural Business Development Grant (RBDG)
- Rural Business Investment Program (RPIP)
- Rural Economic Development Loan and Grant (REDLG)
- Rural Microentrepreneur Assistance Program (RMAP)
- Value-Added Producer Grant (VAPG)
How to Find Private Investors
When it comes to private investors looking for entrepreneurs to back, you get two main options from which to choose – angel investors and venture capitalists.
Angel investors are usually high-net-worth individuals (HNWIs) who bring funding, resources, and experience to the table. They usually invest their own money and come on board during the early stage of a business.
If you find a suitable angel investor to back your project, you might need to look no further for additional funding. However, you need to present an airtight business plan because angel investors tend to look for high returns.
Venture capitalists typically enter the picture during the expansion stage of a business and are able to bring more capital. They invest money of other investors, and not their own. However, they still look for high returns and have a say in how the business is run.
How entrepreneurs can find investors has simplified considerably over the recent years owing to technological advancements. While one can look for government and private funding alternatives online, you can also think about going the crowd-funding way through different online channels. In addition, attending pitch events can help you connect with angel investors and venture capitalists from around the world.
From the perspective of investors who’re looking for projects to fund, you need to ensure that your idea or product is unique, that you have a solid business plan and management team, and that you present all financial data in an easy-to-understand manner. If you can do this effectively, your road to finding an investor becomes considerably smoother.