Small Business Funding: Choosing the Right Investor

Posted in Business on August 17th, 2022

Finding funding for your small business venture is often one of the most difficult parts of the startup process. You can apply for a loan, but that rarely gives you enough money to kick everything off. Plus, you end up in debt, so some of your profits have to go towards repaying the loan. 

Crowdfunding also exists, but it can be hit or miss. If you aren’t fortunate enough to attract attention or go viral, your efforts will be for naught. 

Instead, searching for investors seems like the most well-rounded approach. You get money from someone that wants to invest in your company, and they ask for something in return. However, not all investors are the same – some are actually really bad for your business. So, here’s how to choose the right investor for your company: 

Look for industry expertise

Ideally, you want an investor or group of investors that have experience in your chosen industry. Perhaps they have invested in previous companies before, and there’s a long example of success. They know how your industry works, so they should be in a fantastic position to support you as you run your business. Look at companies like Petrichor, they focus on investing in the healthcare technologies sector. If you have a business here, it makes sense to opt for investors like this over ones with no experience. Apply the same thinking to all industries and rule out investors that might not know how to help your business. 

Identify a positive track record

We touched upon the idea of experience in the previous point, but it’s super important to find investors that have positive track records. Do some research into the individual or group of investors. If they have been successful in the past, it should be pretty easy to find information on them. If you can’t find anything, that’s a red flag. Or, if you find countless articles talking about their failed investments, that’s a huge warning sign to back away instantly! Only deal with investors you can trust based on a positive track record of good investments. 

Know your worth

Most investors will pump money into your company in exchange for shares in your business. Sometimes, investors can ask for too much, meaning they take full control over the organization. Sure, you get money, but you lose a lot of the decision-making power in the business. It can quickly go from your business idea to the investor’s vision, which might not be what you wanted. Talk to investors about your vision and ensure they align with it. At the same time, know your worth and don’t give away too much of your company! It’s easy to give in and sell too much of your business because you want the investment, but be patient until you find someone that doesn’t ask for too much. 

Keep thinking about these three things as you begin your search for investors. If you can find someone (or a group of people) that has industry experience, a positive track record, and won’t take too much from you, then they are perfect!

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