Types Of Investors
Equity financing has become more popular in recent times, due largely to the growth in tech industries. Banks were less willing to take a risk on these types of startups but private equity investors could see the potential, put their money in, and were richly rewarded. It gave rise to a bigger investment community.
The easing of investment restrictions has opened up opportunities for ordinary people to invest in a business.
The main sources of equity financing are:
Angel investors
Wealthy individuals who invest their own money in exchange for a share of the business. They generally want to be involved in business decisions and may want to cash out after a few years. It will help if you can present a profitable exit strategy for them. An angel investor might be someone who wants to invest in your industry, or your community.
Equity crowdfunding
A platform where you can raise funds from the public in exchange for unlisted shares (equity) in the business. This is generally for consumer products or services (not B2B) and you’ll do better if there’s a wow factor to what your business is planning to do.
Venture capital (VC) firms
Professional investment companies which invest their clients’ money in exchange for a substantial share of the business. VCs prefer to invest in companies that they expect to deliver massive and preferably fast growth.
Friends and family
Those loved ones who support your dreams with their own money. Many budding business owners turn here as a first option – or as a last resort.
Business incubators and accelerators
Development schemes to build and boost small businesses. Some will focus on a specific industry, and there’s often a tech focus. Accelerators are more likely than incubators to have seed money to invest as they’re focused on scaling a business they see has potential, rather than innovation.
How To Get Investors In South Africa
Your first step to finding equity funding is to check what types are legal in your market. For instance, equity crowdfunding platforms aren’t permitted in all countries. In the US, UK, Australia and New Zealand equity crowdfunding is allowed.
Central and local government websites should have information about registered venture capital and crowdfunding platforms and any regulation requirements.
Other places to check are:
- Business incubators and accelerators: They may have seed money (to help to start a business) to invest and they have access to angel investors.
- Small business and industry associations: They may have information about equity funders their members have had success with.
- Your accountant or bookkeeper: They may have other clients who’ve been successful getting equity funding. Or they may have clients looking to be angel investors.
- Your bank: They might be able to put you in touch with equity funders or venture capital firms.
- Friends and family: They may be more patient about getting a return and not want to exit the business as quickly. Or they may know other people wanting to invest.
What Makes A Good Investor For Your Business?
If there’s ever a time to look a gift horse in the mouth, it’s when you’re considering investors for your business.
While it can be tempting to shout an emphatic “yes, please!” at someone offering you money, stop yourself. Not all investors are created equal. Before you get yourself saddled with someone incompatible here are some qualities to look for. Ideally, they’ll be:
- local – so you have access to them, and they don’t forget about you
- in your industry – so you can draw on their experience, enthusiasm and contacts
- connected – so they can introduce you to the right people
- committed – so they’re with you for the long haul
The right investor can offer more than just their cash. They can share their experience and connect you with the right people to help your business grow. For example, they might introduce you to new customers, great suppliers, lawyers, accountants, bankers, other investors, business advisors, or contacts in the media.
How Can You Impress Potential Investors?
Show you want to make money with them and for them – not just take it from them.
What’s your plan?
Show them a solid business plan and demonstrate sound financial thinking. They want to see that you can grow fast, and have a plan for delivering good returns and increasing the value of the company.
What’s their plan?
Talk about their plans too. Where do they see the business going and how involved do they want to be?
Be thorough
Take the time to prepare the necessary documents and complete everything they require. Send them your prepared documents ahead of meetings so they have time to review them.
Check how you look online
If your company has an online presence, be aware potential investors may look you up to find out more. Is there anything you wouldn’t want them to see? Can your social media work in your favour and show the potential for growth through your fans and customers?
Being competent with your pitch is a good sign that you’ll be competent running a business. Check out our chapter on building a funding pitch.
