Small businesses and the people who run them are the heart and soul of the nation’s economy. According to the U.S. Census Bureau, 5 million new businesses were launched in the United States in 2022, with the vast majority being small businesses. In fact, more than 99% of all businesses are small businesses, according to the U.S. Chamber of Commerce. For many budding entrepreneurs eager to start their own small businesses, however, one of the biggest challenges is finding investors.
Fortunately, with technological innovations and new options including peer-to-peer lending and crowdfunding, a multitude of options are now available for those wondering how to find investors for their small business. By familiarizing themselves with their investment options and preparing themselves with an advanced business education, aspiring entrepreneurs can learn how to turn their promising ideas into thriving startups.
Kinds of Investors for Your Small Business
Individuals researching how to find investors for a small business should know that, while there are a variety of potential investment sources, not all of these options will be the right fit for them. The following are some common ways for small businesses to find investors.
Family and Friends
Often the most convenient method to secure capital for a small business is to turn to friends and family members. Loans from family or friends do not require completing an application process, but those who choose this method need to set clear guidelines and create explicit investment documentation to protect both the business and the relationship.
Small Business Loans
Backed by the U.S. Small Business Administration (SBA), small business loans are offered to well-qualified borrowers and are partially backed through the loan program and SBA. A safer option for lenders, these loans may be offered to small businesses that would not qualify for other types of financing. However, for the borrower, they typically involve an extensive application or detailed requirement process and can be difficult to get.
Private Investors, Angel Investors, and Venture Capitalists
A popular option for many owners looking to find investors for their small business, private investors or angel investors lend startup money to businesses, often in exchange for ownership equity or shares in the company. These loans can be fairly modest, depending on the investor, as they can be risky and are typically limited to a small part of an investment portfolio.
Peer-to-Peer Lending
A relatively new option for those seeking financing for their small business, peer-to-peer lending uses the internet to connect borrowers and lenders without the intermediary of a financial institution. Borrowers can create a profile for themselves and receive offers from single or multiple loaners, while loaners are able to split their loans into smaller portions and back multiple businesses.
Crowdfunding
Crowdfunding online has also become a feasible option for many small businesses. Crowdfunding involves presenting a business idea online and requesting donations from the public in exchange for the product itself or another agreed-upon option.
Preparing to Find Investors for Your Small Business
The process of finding investors for a small business doesn’t start when aspiring owners begin to reach out to financial institutions or lenders—it begins with careful planning and preparation. Running a small business is a multifaceted endeavor, requiring entrepreneurs to be educated about the industry they are entering and the standard business practices of that industry.
Additionally, many investors will shy away from potential business owners who are not informed and well prepared, making it essential that these individuals approach investment meetings with a plan in place. Some of the things investors may look for are:
- Business plan: An idea without a structured plan is simply an idea, and far too risky for most investors. Taking the initiative to compose a well-thought-out business plan is essential prior to approaching investors.
- Proof of concept: Investors want some idea of what a project’s execution will look like and proof that it’s feasible prior to investing. Entrepreneurs can benefit from doing research and investing in a proof of concept, such as a prototype design.
- Recruiting advisers or partners: While family members and friends may be willing to invest in a project in its beginning stages, other investors may look to ensure a business has some experienced industry advisers or business partners who believe in the idea prior to investing. These advisers and partners can be called upon for guidance throughout the startup process.
- Practicing pitching and listening: Being able to effectively communicate a business idea is essential for finding investors for a small business. By rehearsing their investment pitches, entrepreneurs can show that they have taken the time to learn about the industry they’re entering and have thoroughly considered all aspects of what launching their business will entail. By using active listening skills, they can reassure investors that their concerns will be taken into consideration as the business moves forward.
Preparation is an essential part of finding investors. With careful planning, entrepreneurs can seek out the business relationships that are best suited to their goals and that can help them grow successfully in the future.
How to Find Investors for Your Small Business
Once an entrepreneur has made preliminary plans for their small business and prepared their pitch, it’s time to seek out investors. While online options are available for those looking for investors, building connections and networking in person remains a tried-and-true method for new businesses to find investors while building support and gaining traction in the industry or community.
Networking Groups
Connections are often a huge part of building a small business. By attending networking events with like-minded people, future small business owners can begin to build a support system with other entrepreneurs. Networking groups can be a bridge to finding investors by connecting local businesspeople and encouraging referrals.
Events
Attending conferences, trade shows, seminars, and meetups can be a great way to build business acumen and extend one’s business network. Aspiring small business owners can build connections with other entrepreneurs in the industry, seek out solutions to business problems they may have, and potentially meet investors.
Business School Associations
One of the great advantages of pursuing higher education is the access it provides to a network of business professionals, educators, and alumni. These experienced individuals have often been building their business connections for years, and may be willing to provide advice or a referral to suitable investors.
Incubators and Accelerators
Incubators and accelerators are programs and organizations that help startups and entrepreneurs in their early stages by providing mentorship, investment guidance, and a range of business development resources. These programs can be a great way for an entrepreneur to find investors for their small business and expand their network, as they demonstrate a high degree of seriousness and commitment.
For aspiring business owners, incubators can also be a fantastic resource for seeking out industry-specific mentorship. By connecting entrepreneurs to experienced professionals within their field, incubators can help individuals receive the guidance they need to formulate a business plan, apply for funding, or establish themselves within a niche market.
Discover How an Advanced Education Can Help in Starting a Small Business
For entrepreneurs, getting a startup off the ground requires a multitude of skills, careful planning, and, in most cases, the help of supportive investors. By taking the time to learn about their options and how to find investors for their small business, future business owners can begin turning their dream project into a reality.
Developing a variety of business skills and a foundational knowledge of how an industry works can be a key first step for many aspiring small business owners. By earning an advanced degree, such as the Online Executive Master of Business Administration (EMBA) at Washington State University, entrepreneurs can equip themselves with the practical skills they need to achieve success.
An online program taught by industry leaders that offers real-world opportunities to build experience through international study and a leadership conference, the EMBA program at WSU is designed to give you the practical tools you need to succeed as an entrepreneur.
Discover how WSU can help set you on the path to a fulfilling career.
Recommended Readings
4 Tips for Managing Change in the Workplace
Executive MBA vs. MBA: What Are the Differences?
MBA Career Change: What’s the Value of an MBA?
Sources:
Business.com, “How to Find and Attract Business Investors”
Commerce Institute, “How Many New Businesses Are Started Each Year? Data Reveals the Answer.”
Forbes Advisor, "How Do Business Loans Work?"
Forbes, “How to Find an Investor: Seven Tips for Startups”
Foundr, “How to Find Investors That Will Fund Your Business”
FreshBooks, “How to Find Investors for Small Business: Top 7 Ways for a Startup to Get Capital”
Investopedia, “Angel Investor Definition and How It Works”
Investopedia, “What Is Peer-to-Peer (P2P) Lending? Definition and How It Works”
U.S. Chamber of Commerce, “Business Investors: A Guide to Knowing When and How to Find One”U.S. Chamber of Commerce, “The State of Small Business Now”