Every business at some point, whether it’s real estate or another type of business must get financing at some point.
If you are growing, so must your ability to command capital.
Overall, investors are attracted to your business, and you win more investment dollars by pulling rather than pushing. Investors need to be pulled into your idea or business and once you have them pulled in, then use these tips for getting investors for any business:
#1 Know what investors are looking for – You + The System
Investors and lenders are always looking for two things:
- They want to invest with someone who is investable
- They want to invest in a winning system that truly makes money
When you watch people on Shark Tank or Dragon’s Den pitch for money, the Dragons or Sharks are always looking for those two attributes.
Overall, I would say at least 50% of the deal comes down to the founder and operator, how great is he or she? The other 50% comes down to the business system and how scalable and great it is.
Not surprisingly, great operators typically have great systems and have an eye and nose for money.
Dumb operators usually have dumb systems, so if you have to look at one, you can usually just find a great operator with a vision and then do your due diligence on the system.
#2 Pitch to the right niche of investor
This is the most important part of finding investors. Investors are not equal and they certainly are not all the same. Some investors love real estate, some love scrap metal, some love tech, some love food businesses. Smart investors invest in things that they know about and the more risky the deal or the business is, they only want to invest if they can take over the asset if the operator fails.
This is why investors in real estate like real estate, and food investors like food. If the food operator dies or can’t operate, the investor can take over.
Chipotle got McDonalds as an investor and grew the business with it’s capital and intellect. You need the proper match between the right type of investor and business.
#3 Be prepared to collateralize
Smart investors typically want collateral, something pledged whether it be real estate, your car, inventory or something on the line so you care about the business. People walk away when things get tough and the investor wants some sort of security, even if you don’t have much, be prepared to put it on the line.
Don’t feel bad about putting all of your eggs in one basket or collateralizing. As Warren Buffet, world’s richest investor says “Put all your eggs in one basket and watch the basket very closely”
#4 Be prepared to give up equity
Really smart investors typically want equity and dividends in return for the risk they take on your venture. If you are established or are in a very strong position, you might get away with an interest rate, a term loan or line of credit, but typically, most new businesses have to give up some equity.
As an entrepreneur or founder, you want to keep your equity for as long as possible and keep the maximum amount possible. I recommend negotiating a buy-back structure where if you hit certain targets by a certain date you can reclaim lost equity on the front end.
Equity is where you get really rich, no one gets rich on cash flow.
#5 Have your financials ready
Have your numbers and financials ready.
The Dragons on Dragons Den and the Shark on Shark Tank always want to know “What are your sales and what does it cost to deliver on those sales?”
If you have your numbers ready you are in a better position to negotiate stronger terms in your favor.
Unfortunately, most entrepreneurs up until about $2,000,000 in sales have very messy books and have to clean that up before they can show the real numbers.
If you don’t know your numbers, you don’t know your business. Have all your numbers checked and ready before going into the negotiation, especially key metrics.
Good luck in the hunt for capital.
Respect The Grind,
Stefan Aarnio
P.S. If you want further FREE training on capital raising, go to CapitalRaisingSystem.com and enjoy some of my FREE video training.
