Should your small business work with an investor? Most business arrangements may not be conducive to that sort of an arrangement, but yours might be if you have a unique product to sell or a special service to offer. However, with one or more investors on board, you effectively dilute ownership, and if you are not careful, you may lose some control over your operation.
The following small business smarts will help you decide whether investors are right for you, and if so, how to work with them.
- Capital. The principal reason why business owners turn to investors is to raise capital. You may have the best product or service, but if your financial resources are weak, then your dreams may never come to fruition.
- Knowledge base. Along with the money should come something that every investor prizes: a knowledgeable individual or team that can help you overcome some of the challenges that all businesses face. Your investors may have the experience to help out during an especially challenging time, perhaps calling on their own resources to pitch in.
- Communication. You will need to report to your investors by giving them regular updates on how your business is progressing. However, communication can be fraught with challenges if expectations are not managed. For instance, your investors may want input on many of the decisions your company makes, even overriding your authority. It is important that certain parameters be established before you enter into a business relationship with those boundaries maintained throughout your working relationship.
If you decide that you want investors, there are a number of options that you can consider. The easiest option is to work with people you already know including friends, family members and business associates. You may also find potential investors through the following means:
- Business association or community. If you belong to the Better Business Bureau, are a member of Business Network International or you meet informally with business associates on occasion, you have a pool of potential investors to consider. You know these people and they know you.
- Business trade association. If you belong to a guild, a trade association or a similar group, you have access to another pool of possible investors. You can also ask members to introduce you to people that they know.
- Capital groups. Another option is to consider local, regional and national investing groups that might be interested in your endeavor. Angel investors and venture capitalists might also be contacted. The difference between these two is this: an angel investor may provide his or her own up-front (seed) money to fund a new business. A venture capitalist typically comes along to fund an established business, investing other people’s money such as a pension fund or a college endowment fund to support your business.
Going with an outside investor can bring in money and a lot of it. With the ground rules firmly established you can know what you are getting yourself into. Even so, once an outsider does provide funding, the way you conduct your business may never be quite the same again.
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