How to find investors for your small business

The right investors can provide a wealth of benefits beyond the money they bring to your business — from access to their professional network to well-grounded advice. To attract and retain those backers, you will need to gain their confidence and prove that you’ll put their money to good use. 

What investors look for

A strong character and track record

More than anything else, many investors base their decisions to invest solely on the founder and the team. For that reason, they look for entrepreneurs or CEOs with a track record of high performance in either the industry the company targets or in previous ventures, whether the business is a startup or long-standing company. 

Providing information about your professional background and relevant skills, including prior business failures, will help potential investors evaluate your ability to succeed. “Entrepreneurs who have experienced both successes and failures can be really strong candidates,” says Elizabeth Gore, a small business expert and co-founder and president of Hello Alice, a fintech platform that provides small business owners with access to credit, loans and grants.  “Ultimately, every mistake leads to a lesson that makes smarter small business owners,” she says.

Investors also look for character in the entrepreneurs they back. They may ask for references and wish to spend time getting to know you in person. 

A compelling story

Whether you meet potential investors at a networking event or send them an introductory email, you’ll need a great elevator pitch — three or four pithy sentences that tell them exactly what your company sells, how it will be successful in addressing a gap in the marketplace, how much money you're trying to raise and how you will use it. 

Once you’ve broken the ice, be prepared to share your detailed business plan. Your business plan is where you convey your company’s product or service, how your company will address the market opportunity, who makes up the management team, how much money you plan to raise and how you will use that money, among other things (see Ingredients for a winning business plan below for more details). 

Many investors will, in your initial conversations, ask for a one-page executive summary of the plan that offers an overview of the company, the market and your finances. Once you’ve enticed them with the summary, they may ask you for a brief presentation or more in-depth business plan so they can get a better understanding of your company. 

Many great brands tout the inspiring stories of how their founders launched their respective companies. “Outside of the numbers, everyone loves the story,” Gore says. Just as compelling are customer success stories that show how excited people are about the company's product or service. Find the appeal in the story behind your business and be prepared to share it. 

Growth potential

Investors want to see their investment appreciate, so they tend to favor businesses that are growing or on the cusp of growth. “That’s when investors love talking to owners,” Gore says. Innovative startups that can prove they’re targeting a potentially lucrative, scalable market also greatly interest investors.

Showing sales data or the results of market research that demonstrate demand for your product or service can help illustrate your business’s growth potential. Many investors will be especially interested in seeing documentation of month-over-month or even week-over-week sales growth. Make sure that you provide realistic numbers. While investors like to see ambitious projections, they're turned off by data that is not grounded in reality. A sales forecast can be a helpful tool in estimating future sales, so you can take that information into account in your planning.

Financial stability

Investors will want to see information that indicates the current financial status of the business. Usually, they will expect to see current reports such as a profit and loss statement, a balance sheet and a cash flow statement as well as projections for the next two or three years. Make sure to explain any variables that could affect these numbers and how they would change results. You may also need to supply investors with a statement of stockholders’ equity and capital requirements. 

What if you’ve seen a decline in sales? That's not necessarily a deal breaker as long as you explain the reason. If a drop in sales has been calamitous and ongoing for an extended period, you may wish to look for investors who gravitate to businesses they can help turn around. 

It's natural to be excited and optimistic about your business, but ultimately, it's important to present investors with a realistic picture on every front. The more they know about your company, the easier it will be for them to help you grow it.

Ingredients for a winning business plan

A strong business plan should compel investors to invest in your enterprise. Typically, a business plan will include some or all of these sections: 

• Executive summary: This is a stand-alone, one-page summary of the business that can serve as an elevator pitch for your idea. Summarize your vision and goals in a descriptive, engaging way. Because this will encapsulate everything else in your plan, write it last, even though it typically comes first in your business plan.
• Company description: This is where you provide more detail about your product or service, differentiating factors and business model. Explain your mission, philosophy and vision, company history, and core strengths. Also mention challenges so investors know you’re aware of them.
• Market analysis: For credibility, you must be able to convey a solid understanding of your target market, industry and any competitors. You should include market research if possible.
• Products and services: Clearly explain what want or need your product or service satisfies or what problem it solves. Share plans for intellectual property like copyright or patent filings. Also describe any proprietary features that give you an edge over your competitors and how you have priced your offering.
• Management and organization: Investors will want to see biographies of the owner and key employees, an organizational chart, the legal structure of your business, a continuation plan and a list of your advisors and their relevant credentials.
• Sales and marketing plan: Elaborate here on your marketing strategy for attracting and retaining customers and closing sales. Discuss what distribution channels you will use.
• Funding request: This is where you'll outline your funding requirements if you’re seeking any. Clearly explain how much funding you’ll need over the next five years and what you'll use it for. Specify whether you want debt or equity, the terms you'd like applied and the length of time your request will cover. Give a detailed description of how you'll use your funds.
• Operations plan: This should cover your daily operations, including your location(s), personnel, production methods, equipment, inventory, vendors and credit policies.
• Financial projections: Typically, this section will include your past three to five years of financial statements and current year-to-date financial statements. Include year-end balance sheets, operating statements and business tax returns for the past three years as well as your current balance sheet and operating statement. Include 12-month and three-year profit and loss projections, a 12-month cash-flow projection, a projected balance sheet, a break-even calculation and a use-of-capital statement explaining how you will spend the money you raise.
• Personal financial statement: This should show how much capital you will have available in the event you need to tap your personal funds for the business.
• Appendices: Provide supporting documents or specifically requested materials. Common items to include are credit histories, résumés, product pictures, letters of reference, licenses, permits, patents, legal documents and other contracts.