If you have determined that you need money from other sources in order to start or grow your business, you may want to locate funding through private investors. How do you find these investors? And how do you know that allowing them to assist you is a wise business decision?
Investors Close to Home
Many small businesses rely on investments from themselves, family, friends, and colleagues. This option can be good if you don’t need a large investment.
Venture Capital Investors
Venture capitalists may include wealthy groups of individuals (also called “angel” investors), government groups, or financial institutions. Most venture capitalists take a fairly active role in your enterprise. For example, they may serve on your board of directors or insist on management changes if your business doesn’t meet profit expectations. Unlike debt financing (described in Business Loans & Financing), equity investors grant you funds without securing assets; equity financing is considered unsecured debt.
Seeking Venture Capital Referrals
You may be able to contact venture capital or equity financers directly, although many equity investors work through referrals only. But how can you line up a referral?
U.S. Small Business Administration. A good place to start is with the Small Business Administration, which registers private investors via two programs: Small Business Investment Companies (SBICs) and Minority Enterprise Small Business Investment Companies (MESBIs). In addition, the U.S. Small Business Administration (SBA) has many other equity investment programs for small businesses.
Venture capital associations. Several trade and educational associations represent a variety of venture capitalists, many of whom focus on small or start-up businesses. Some of these associations are geared specifically to the needs of minority or other underrepresented enterprises.
Local VC resources. Silicon Valley is the birthplace of venture capital — yet, not all investors focus solely on high-tech industries. Business incubators in our area may be able to link you with local venture capital with an interest in your industry. Many BOS partners can link you up with groups who may be able to provide the capital you need to start or grow your business.