- It’s not always easy for entrepreneurs to find investors, but experts offer advice that applies across all industries and situations.
- When seeking investment, you should research your market and understand your competitors so you can highlight what sets your business apart.
- You should exhaust all your funds before offering equity to investors, and use your network to facilitate introductions to potential partners.
- This article is for entrepreneurs seeking investments to grow their small businesses.
Entrepreneurs and small business owners worldwide look to the hit ABC reality show Shark Tank for business ideas and helpful industry tips. Entrepreneurs receive advice from prominent investors, or “sharks” – such as Lori Greiner, “The Queen of QVC;” Kevin O’Leary, otherwise known as “Mr. Wonderful;” and Dallas Mavericks owner and billionaire Mark Cuban. The show also offers investment opportunities to contestants who effectively sell the sharks on their business ventures.
Securing investments isn’t easy, but it’s possible with the right connections and foresight. We’ll explore best practices, advice, and tips from successful entrepreneurs and investors.
Investment tips from the sharks
Here are some investment tips from successful entrepreneurs for business owners who need funding so they, too, can swim with the sharks.
1. Try to keep your equity.
“Exhaust all sources of funds before giving away equity. It may seem like equity is cheaper – there’s no interest, right? But you’ll pay your equity partners forever. While debt may seem riskier, if you believe in your business, you should take on as much debt as you can stomach before giving away any equity.” – Ian Jackson, CEO of Enshored
2. Gain traction first.
“If you already have a working product, obtain and showcase as much traction as you possibly can. In the investment world, ‘traction’ is the magic word. Traction can be many things. It can be registered users, paying customers, press articles, having a large audience, letters of intention, partnerships, or even a very small group of people who couldn’t live without what you are offering. Traction is the most effective way to prove that your solution creates interest and is monetizable.” – David Arnoux, co-founder of Growth Tribe
According to NPR, more than 5.4 million applications were filed for new businesses in 2021 – a record pace for entrepreneurship.
3. Test your product.
“Do test your product at the POC (proof of concept) level with a few test customers through a joint development program. This helps to create faith in investors that there is demand and also helps you build a product that will see quick adoption from the market.” – Som Singh, Ph.D., founder of Unspun Consulting Group
4. Control your risk.
“Determine what percentage of your account that you want to invest on any given trade. [If you were to] divide your portfolio into slices of pie, make sure to have a large portion left if an investment goes against you. It doesn’t make sense to over-allocate or use leverage if the negative consequences are catastrophic to your account. Many professionals never risk more than 3% to 5% of their account, so when they are incorrect, in excess of 95% of the account is intact.” – Alan Knuckman, chief marketing strategist at Bulls Eye Option
5. Research the competition.
“Know your competition inside and out. Know their strengths and weaknesses, know who the main game players are, know everything. Always be ready for a plan of attack when things don’t go your way.” – Michael Bolger, advisory board member of Driftr
Conduct a routine competitor analysis to understand your competitors’ strengths and weaknesses and identify marketplace gaps.
6. Try networking.
“Attend events where you meet potential investors, such as Global Entrepreneur Week and the Hatchery’s Hatch Match. These are ideal events to network and present your business and ideas.” – Ian Aronovich, co-founder and CEO of MedaDoc
Other networking avenues include tapping into your alumni network and proactively expanding your professional network.
7. Split your funding.
“Split investments between ‘now’ money and strategic money. Why? ‘Now’ money allows you to keep the momentum going strong, while strategic money allows you to take your business to the next level.” – Brian Marvin, founder of RunBikeHike Club
8. Ask your family.
“Raise money first from family and friends. Odds are that none of them want to give you money, but you’ve got to try. If your business idea can’t raise money from people who know you and trust you, you’re going to have an even harder time raising money from strangers.” – Dan de Grandpre, co-founder and CEO of DealNews
Aside from financial support, entrepreneurs rely on family and friends for emotional and even operational support.
More tips and advice for a successful investor search
Entrepreneurs often have more potential support than they realize. Here are a few tips and resources you may not have considered.
1. Use crowdfunding platforms to look for investors.
Crowdfunding is a helpful avenue for entrepreneurs who need investments. Each crowdfunding platform is specialized for certain funding needs. For example, with donation-based crowdfunding like GoFundMe, crowdfunders don’t receive a return for their donation, whereas reward-based crowdfunders, like Kickstarter and Kickstarter alternatives, expect to receive a reward for their contributions.
With equity crowdfunding, an investor takes some ownership of the company in exchange for their investment. Alternatively, with peer-to-peer crowdfunding services, companies will match those in need of investments with investors.
2. Use SBA resources.
The Small Business Administration offers a lender-matching tool that can pave the way for business owners seeking investors. This tool matches businesses with lenders that have been approved by the SBA. In addition, the SBA helps secure business grants and offers SBA loans for those who qualify. The organization also provides online courses and tools to help entrepreneurs grow their businesses.
3. Contact people in your line of work.
Existing networks are an easy way for entrepreneurs to connect with possible investors. While results won’t be immediate, contact your connections in your industry to gain insight and find leads. Colleges and universities are also excellent resources for funding, as schools often invite and have relationships with experts in various fields.
Brittney Morgan contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.