Among the many reasons small businesses prefer personal investors is the fact that while banks are tedious and cumbersome, a good lunch or dinner with a potential personal investor can mean the much-needed cash injection gets to the small business in no time. This is crucial, because businesses don’t wait around for investment; it’s either do or die for startups, so personal investors are the most logical and viable choice.
More so than that, they are also more likely to accept and bankroll a small business and can understand the idea behind the startup more easily as compared to banks, which are more bureaucratic and have to follow a set of instructions before they can do so. Which begs the question, as a small business owner with great potential, how can you find personal investors for your small business?
At one point or the other, every startup, no matter how affluent the person responsible for it, a startup is going to need investment. When that time comes, choices are always plenty, each with its own set of pros and cons. For instance, one of the most popular investment-gathering techniques nowadays are crowdfunding platforms like GoFundMe and Kickstarter.
These platforms, as their names might suggest, use the internet as their base of operations and funnel in donations and money from users on their website to help companies, start-ups and even individuals get to their target of money raised. There are plenty of examples in recent times where start-ups with promising ideas and inventions have utilized this platform to raise money, and it has almost always ended well. But for the more conventional methods, personal investors are still the better choice for small businesses.
What are the Benefits Of Personal Investors For Small Businesses?
As explained beforehand, personal investors need not be friends or family members. No, that is considered another sort of investment strategy and since you can ask for a loan as well from this stratum of investors, it really isn’t fair to call them investors. However, there are many other types of personal investors and we’ll take a look at them after we explain why personal investors are better for small businesses.
The first point would be the same as explained in the start; that because the investor and the small business owner have a much more direct relationship, there is no need for an extended wait or any process to go through to officiate it. As simple as taking out the personal investor to dinner or lunch and pitching them the idea then and there, personal investors are therefore easier to pitch the idea to.
Secondly, they are easier to convince and are more likely to actually get on board. Again, in comparison with banks and other sources of investment, personal investors, owing to their direct and rather informal relationship with the small business owner, are more likely to agree to bankrolling the establishment. To further explain this, banks and other investment and capital firms are supposed to do their due diligence while gauging the feasibility of the project they are about to dump their hard-earned money into.
Therefore, no matter how much the investment pitch was heartfelt and proper, there is always the possibility of the bank or investment firm refusing to entertain it. On the other hand, small businesses have a more direct relationship with personal investors, which could explain why it is easier to convince them to join the fray of the small business and get them to provide the business with the investment.
Again, with a bank, there’s always the lingering possibility that the loan or the investment amount will be denied; if not due to the pitch, due to requirements and restraints on the bank itself. With personal investors, there’s simply no such thing as regulations or restrictions, and small businesses capitalize on this fact.
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Lastly, personal investors are usually older people with some business acumen, the latter of which isn’t usually a case with newcomers trying to make their name with the startup. With the inclusion of investment from the personal investor and their business acumen, small businesses stand to gain a lot and that is why they prefer going for the above.
How to Get Someone to Invest in Your Small Business?
Sourcing investment for your small business to grow it into a larger economic entity is imperative. As a business owner, nothing seems more important than to keep the business running and booming. Here are some of the ways you can get personal investors onboard to help out with some pesky expenses and the types that you can count on.
Asking Friends and Family
One of the easiest ways to crowdfund or source investment for your small business or start-up is by asking friends and family members to pitch in; either as a loan or as an investment amount. This is the first option because at first, the idea may not seem feasible enough for the bean counters at the bank or the investment firm. Or maybe because the idea does not require an amount as large as banks are authorized to lend out.
Whatever the reason, the first and foremost investment source should be friends and family members. Prepare a full-fledged presentation for them; just because they are friends or family members does not mean that they don’t need to be convinced or you should not do your due diligence.
Apply For a Loan at Dedicated Lenders
There are loaning agencies created specifically for purposes of helping out small business owners with loans at low interest rates. There is the SCBA, a federal lender and several other state-level lenders that lend out money specifically for small businesses.
They each have a definition over what constitutes a small business (revenue generated, income stream etc), so if your business falls in their categorization and completes all the requirements, the SCBA and other lending bodies might be the next best thing from a personal investor.
Getting Personal Investors On Board Your Small Business
The most viable and preferable option in the case of a small business is getting personal investors on board the small business. They, along with their money and their business experience and acumen will be a great help to you, guiding where necessary and providing investment for the small business at its most crucial stage. There are many types of personal investors, and each will be discussed in detail.
Types Of Personal Investors
There are many types of personal investors, and while some may classify ‘friends and family’ strats as personal investors, but according to the prevalent definition of the phrase personal investor, friends and family are related and therefore do not constitute the element commonly associated with personal investors.
A common example given is that an investment pitch for friends and family is not the same as it would be given to any personal investor. Because while you don’t have to worry about meeting stone-faced banking executives and the investment board, you still have to make a strong case for your small business and why it warrants the investment amount you’re aiming for, which is why pitches given to personal investors often have more work put in them, oftentimes more than what any investment banker would see.
With that being said, here are a few examples of personal investors,
- Venture capitalists: As the name might suggest, venture capitalists come in at the point where a small business, especially a start-up is showing promise in a market segment previously untapped. This means venturing out in the unknown, hence the name. Venture capitalists usually invest on behalf of other people and rarely use their own money. Either way, one of the major examples of personal investors are venture capitalists and they are worth looking into for a small business’ capital needs.
- Angel investors: Angel investors are individuals with a fortune behind them and are willing to invest in a start-up. They are either business-retirees themselves or simply high-worth individuals looking to diversify their investment portfolio. Since they’re not connected to a bank, they are free for personal investment opportunities. But they are equally as hard to convince; your business pitch must be flawless and airtight to convince them to get aboard. Plus add in their own skill set and their business acumen, and scoring one can mean the world to a new or small business.