Thursday, 22 Mar 2012

How to Find Investors for Your Business Idea

Having a good idea for a startup business is only the first step in earning money from it. The concept itself may be marketable, but if you don’t have enough money to start the business yourself, you’ll have to come up with a way to get investors interested in your idea. There are people with money to invest that make it a habit to keep their eyes and ears open for new ideas. It’s up to you to find them, and convince them to take a chance on you. Following are a few tips on how to find investors for your business idea.

Define Your Needs

The first thing you should do when you decide to seek out an investor for your business idea is to define your needs. Basically–how much money do you need? If it is only a small amount, then approaching family members or friends may be your best bet. Convincing your mom and dad, your brother-in-law, or your best friend from college, to invest in your idea could solve your financial problem and potentially make some money for everyone concerned–and it would be nice to keep that money among family and friends. However, if your idea calls for a great deal of cash up front in order to start up a new business, or to expand an existing one, then you may have to look beyond family and friends and find a venture capitalist.

Have a Plan

If you do decide to seek a venture capitalist–someone willing to invest in your business with the expectation of a reasonable return–probably the single most important thing you can do to attract one is to come up with a bona fide plan–a well thought out proposal showing how the business will be operated, and the means by which it will generate enough profit to make it worth their time, effort, and money. The business plan should include a breakdown of the expected expenses and proposed income for a selected period of time. It should also include all the material and inventory the business will need to operate, as well as projected earnings. The more detailed you make your plan, the better able you’ll be to convince a prospective investor to listen to you. Be realistic in laying out your plan. Hopefully, an investor will be convinced that you’ve thought of every conceivable problem, and have a solution to that problem. You may want to think about hiring a business advisor to help develop the plan.

Invest Your Own Money

When you’re trying to find an investor for your business idea, make sure you let people know that you intend to invest your own money, as well. This will show a potential investor that you’re serious enough about the venture to risk your own cash. They will realize that you’ll put in the time and effort it will take to make the business succeed, because if you don’t, you stand to lose your own money.

Show How Their Money Will be Used

When you approach a potential investor with your business plan, you should also have a plan in place to show them how their money will be used to make the business succeed. Basically, you’ll need to show an investor how their money will make the business better and more profitable. Your proposal should convince the investor that their influx of cash will provide the business with the opportunity to expand at a rate that will make it worth their while to supply the money. For instance, you could show them that their money will make it possible to find new customers, which will in turn lead to higher earnings. Or, you can show how their money will be used to reduce the cost of making your product, thereby creating a higher profit margin.

Expansion, Not Survival

When you’re trying to get an investor to give you money for your business, you should be able to make it clear that the funds will be used to expand the business, and increase profits, and not merely keep the doors open. Not many investors will jump on the bandwagon if they know their money will simply be used to pay existing bills. You would probably be better off trying to get a loan for that purpose. In order to entice investors to your business, they will need to be shown a clearly defined route to potential profit–otherwise there isn’t much incentive for them to risk their money.

Guest post from Bailey Harris. Bailey writes for BusinessInsurance.org.


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