It isn't easy asking strangers for money but if you've had a difficult time getting a bank loan, now may be the time to consider getting investors. Here are a few tips to keep in mind if it's something you choose to do.
In this economy, it isn't the easiest thing in the world to obtain a bank loan. Small business start ups find it an even harder time because they don't have the ability to show steady revenue from their new product or service.
In order to show steady revenue, you need capital to start or expand the business. This is where investors come into the picture. Investors have the capital you need and are always looking for a new opportunity to invest their money.
Now that you have your business plan and presentation organized, there are a few things to keep in mind before accepting the first investor's offer that comes across your desk.
Before setting out on this adventure of finding investor, consult an attorney. You don't want to enter into a legally binding contract with an investor before understanding what you will give up. Once an investor has seen the value in your product or service they will approach you with terms that could include a percentage of ownership in your company. An attorney will make sure you are not losing your socks, or rather, control of your own company.
Compile a list of possible investors before you start sending out introduction letters. Just as those companies will want to know more about you, you should find out more about them. Are they a reputable company? What do public records say about their own finances? Have their past investments been successful? These are all things to consider before agreeing to their terms. If a company isn't forthcoming with their own background, move on. If they are willing to invest in your business then they should be willing to provide you a detailed background before you invest your time in them. Researching companies will also give you a better idea of the type of relationship you could expect to have.
Before you start passing your business plan around in hopes of gaining an investor you must first have any interested parties sign a non-disclosure or non-compete agreement. This is simply a binding agreement that they will not try and take your idea for the sole purpose of duplicating the product or service for their own benefit. The bottom line is, protect your idea. If someone isn't willing to sign a non-disclosure, don't be willing to share your idea or business plan.
If you have a really great idea you may get more investment offers than you'll know what to do with. Obviously don't accept them all or you end up right back where you started, working for someone else. Instead, interview the investors to determine the one or two that will meet your needs and give you the partnership you are seeking. Try not to go above three to four investors so as not to overextend your business.
Keep good financial records and provide your investors with a straightforward account of the business operations from quarter to quarter or however often agreed upon. In the beginning, don't be surprised if the investor seems very hands on. This is to be expected if you have found a reputable partnership. A legitimate investor will also be able to offer you their expertise in getting you off on the right foot. After all, it's their money. They want to make sure you are spending it right because if you are, they are making money too.
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