How to find equity investors
If you want to find equity investors for your business, you need to know what investors are looking for. Knowing investors’ wishes will help you as a business owner tailor your investor search, which typically includes the following: the people you speak to, your “elevator pitch,” and the information you provide. Capital investment is a business relationship. Therefore, the best way to initially involve investors in stocks is to take advantage of your existing relationship with an investor or to obtain a referral or presentation from someone else.
If you don’t know any equity investors personally or can’t think of anyone who can provide a recommendation or facilitate a presentation, prepare for rejection. However, don’t be discouraged. Keep refining your message and meet investors through networking opportunities.
It is not always a fact that equity investors reject you when there is no pre-existing relationship. Although it is true that it has a much greater credibility when presented by someone whom the person or entity you are looking for considers credible, it can take advantage of other “connections”. You may find investors who may be alumni of your school, who may be from an organization you belong to, or who may have a strong affinity for your particular industry. Or, if your business has won awards especially for growth, creativity, or customer service, you can give all of your awards to potential investors. Any type of connection that encourages someone to answer a call from you or read an email is a connection that works.
If you still have no idea where to start, consider entering a business plan contest or attending (preferably participating in) an angel or venture capital conference or investor presentation series. You may meet people who can help you. Plus, exposure can definitely help you hone and refine your message. At the very least, exposure to other entities seeking investors will help you see the holes in what you are saying or doing, and how to correct those problems.
Another way to find equity investors when you don’t yet have entities or individuals who have expressed an interest in your company is to “close the deal.” That means you put “sensors” to generate interest in your company. For smaller companies looking for angel investors, the best way to go is to create a Inverter Profile Sheet, a one-page summary of the company that provides a snapshot of the company, its market, its competitive advantages, and its performance to date. Send this Investor Profile Sheet to everyone you know and ask them to send it to anyone they think would be interested in investing. If an investor is interested but does not think your company is suitable for them, the investor will send the Investor Profile Sheet to others who may think that your company is a valuable prospect.
Once an investor expresses initial interest, or as a first step if you are seeking private equity or venture capital, submit the Executive Summary. The executive summary should only be 3-5 pages long and provide an overview of your company, market, management team, growth prospects, strategy, and plan. It should include basic historical and projected financial information. You want to paint a positive image. If there was an obvious problem in the past (such as a big drop in revenue), mention it here and mention how you solved the problem. This will improve your credibility and that of your company as you progress. (Some business owners try to hide issues and only raise them when the investor finds out. This creates suspicion and undermines credibility.)
Once an investor expresses a serious interest and has signed a Confidentiality agreement (CA) or Nondisclosure agreement (NDA), or better yet, a Letter of Intent (LOI), then share the full business plan. This includes complete details about your market, your prospects, your goals, and your plan and methodology to achieve these goals. Finally, after all parties have signed an LOI or equivalent agreement, share all requested material with your now fully engaged prospective investor.