By: Ori Epstein
You’re ready to take your young or developing business to the next level with more employees, a new product or an ambitious marketing plan, but you don’t want to add debt to your balance sheet. Nor can you suspend your salary to finance your expansion organically.
The real question: How can you find investors to bridge the gap?
Doing your homework will help you locate and impress the right investors with the perfect elevator pitch, and bring you closer to securing the necessary backing.
How to Find Investors
Be proactive in making your business known to prospective investors.
- Ask your commercial bank for introductions.
- Reach out to local business owners who have successfully raised capital for connections.
- Trumpet your company and its growth at chambers of commerce, Rotary Clubs and similar organizations.
- Depending on the size of investor you need, try social media, crowdfunding sites like Kickstarter and investment banks that have experience supporting companies like yours.
- If your company has achieved something newsworthy, make a pitch to media in your area or in your niche. Find the right reporter at the right outlet, and send an email based on the legitimate news value of your company.
Three Steps to the Perfect Pitch
The perfect elevator pitch will help you impress the right investors:
- Begin with a big-picture view of your company’s history, growth and profitability.
- Explain why you’re seeking capital and the impact it would have on your company’s financial performance.
- Tell how investors will be rewarded.
Keep the pitch as conversational as possible, and remember why it’s called an “elevator” pitch (because it’s short). Change it up depending on who you’re talking to — how much that person already knows about your industry, business and fund-raising effort, for instance.
Similar distinctions will be found among the kinds of investors you’ll seek.
Most small businesses, particularly during the startup phase, will seek angel investors. They assume more risk than later investors, and they want higher potential returns and a concrete exit strategy for it. Venture capitalists are often asset managers who use large pools of cash to make multiple investments for fund shareholders. Few consider investing less than several million dollars in a portfolio company.
Ownership Dilution 101
Now, before you start pitching prospects, consider ownership dilution.
Start by answering these questions:
- How much money do I need to raise now?
- Will I need to raise more in a few years?
- What is my business worth today?
- How much will its value change if my plans for the new investments pay off?
Having answers to all of these questions will give you a general idea of how much you may need to dilute your ownership stake to raise the capital you need.
Once you have the necessary information, your next questions will be:
- What is the biggest slice of my business I’m willing to give up?
- Do I want passive investors, or am I prepared to give a role in strategic decision-making?
- Am I looking for a long-term exit strategy that will allow me to eventually sell all my stock or just an intermediate means of getting funds to fulfill my business plans?
- Will it be possible (or desirable) to distribute profits to investors over the next few years, or do I need to position this strictly as a long-term investment?
Finding investors may be difficult if you only give up a small share and don’t want others making suggestions about how to run your business. A lot depends upon what kind of shareholder minority rights you put into a shareholder agreement or add to your corporate bylaws.
Summary: A Refresher Course
- Find the right level of potential investor.
- Craft your elevator pitch.
- Plan ownership dilution strategies.
Then consult a CPA-led advisory firm or other professional who can help you plan and execute the process of finding investors.
You’ll be glad you did the homework necessary to make the right moves for your business growth.
Mr. Epstein is a partner at Aprio, a 2019 ATDC program sponsor. The views expressed are not necessarily those of ATDC or Georgia Tech.