How to Find Equity Investors: Everything You Need to Know
You need to know how to find equity investors if you want to start a new business.3 min read
2. What Is an Activist Investor?
3. Getting to Know Your Investors
4. Pinpointing Comps
5. Importance of a Business Plan
You need to know how to find equity investors if you want to start a business. Before you begin your fundraising process, it is wise to consider who your mentors might be. Find industry mentors to serve as honest brokers on both the investment and operating side of raising capital for your business. Mentors should be others who can guide you with their expertise and experience.
Entities Worth Considering for Raising Capital
- Investment professionals
- Investment bankers
- Entrepreneurs in your industry who have a proven record for successfully raising capital
Mentors, such as those previously mentioned, are often a great starting point to get you well versed in the world of investing and helping you find the best fit for investment bankers in your area. You should consider what you want in an investor because investors can provide services in a variety of ways.
For example, cars can move from point A to point B. The make and model of the car will determine what kind of experience you have getting there. So it is with investors; each investor will have a vision of how to get the business where you want it to be.
What Is an Activist Investor?
You may decide you would like to have an activist investor; this is the type of investor who is heavily involved in all matters, such as pricing, suppliers, hiring, and so forth. An investor who is more passive is an option as well; this is someone who will write you a check and show up at board meetings throughout the year.
If you are hoping to expand your company in the future in a distant location, you may want to consider a firm that has ties to the desired location and a great deal of experience in your industry sector. While there are no right or wrong answers in what kind of investor you may want, it is crucial that you align yourself with investors who share the same vision as you.
Getting to Know Your Investors
Getting to know all potential investors is a great first step, considering this is someone who may be leading the investment in your company. One way to catch a glimpse of the potential investors' manner and approach in doing business is to conduct calls with current and former portfolio companies.
An approach for smaller companies who may be considering an equity crowd-funding site or individual investors is to reflect on the previous platforms of the potential investors and ask yourself if your company might appeal to them or if they have helped in raising funds for other companies similar to yours.
Most firms who are looking to invest capital have a minimum amount they would need to invest for it to work. For that reason, when deciding the type of investors you will approach, you should consider the amount of money you are raising. The investors or firms you approach if you are raising $2 million will look very different than the ones you will approach if you are raising $10 million. This prevents you from investing your time in selling your business to a firm who needs to invest $10 million when you only need $2 million.
In the same way, you should understand the implications if a firm who normally invests in large amounts, such as $50 million, but agrees to write you a check for the amount you are raising, say $10 million. It is possible the firm will give your company little attention due to the investment being so small compared to the firm's other investments.
Comps can be hard to come by, especially in the consumer industry. However, finding what similar companies in your location and industry are worth can be helpful in determining the value of your business.
Comps can provide you with information in regards to which investors invested in similar companies as yours, and which ones miss out on good investment opportunities or remain bullish. You probably will not use the same investors but having the information may prove to be valuable in the future.
Importance of a Business Plan
Having a business plan can increase your chances of seeing your business succeed. If you are approaching banks, government agencies, or venture capital, you will most likely be required to have a business plan. Writing a business plan gives you an opportunity to research the markets and prepare projections, which is valuable in itself.
If you need help with understanding how to find equity investors, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.