What is an investor?
Investors are individuals (on their own or in groups) or businesses that offer to invest in exchange for shares or royalties. What exactly does that mean? To obtain financing, you may have to relinquish a portion of your business.
What are the different types of private equity?
Are you ready to take advantage of them? Here are the main two categories:
Venture capital, an investment in a start-up
- For businesses that haven't yet become profitable or with projects associated with a new technology, an innovation or a new approach.
- These investments have the potential to generate high returns, but they are risky.
Pro tip: More advanced projects with greater marketing buzz and higher revenues are more attractive for potential investors.
Growth capital, an investment in a business that already has products and sales
- Suitable for projects involving upgrades, acquisitions, developing new markets or business transfers.
Example: Let's say you're acquiring a business (e.g., one of your competitors) but can't take on the level of debt required. You may decide to take on a partner to reduce the risk involved in your project.
Why should you look for investors? What are the benefits?
Investors can do much more than simply inject capital into your projects. You can also take advantage of their:
- Experience: Make the most of their knowledge and learn from them. They are likely to have gone through situations similar to yours.
- Skills: Leverage your investors' expertise, strengths and talents.
- Business networks: Benefit from new partners, suppliers, clients, etc.
What are the drawbacks of having investors?
Investors are taking a risk (whether large or small) by financing your business projects. This means you may have to:
- Answer their questions (e.g., reassure them about your strategic orientations)
- Make reports (explain and justify your business decisions)
- Share sensitive information (e.g., about your business finances)
- Pay royalties or dilute your share ownership (the percentage you own)
What other sources of financing are available?
Investors are just one of the sources of financing you can seek out for your project. You could also resort to crowdfunding, a business financing program or bank financing.
Finding the right investor for your business
Once you've identified what type of investment you need, carefully consider your company values. Next, make sure your potential investors understand and share those values. To build a strong partnership, you need to be on the same wavelength. Remember that each investor will also have their own specific investment horizon (which will affect the duration of the partnership). Different investors will also have different levels of patience, expectations and strategies.
Pro tip: To help you with the process, talk to other business owners who have dealt with investors. Their experience may help you refine your search criteria. You'll also get the opportunity to expand your network, and maybe even find some partners.
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The following resources can help you find investors:
- Your own network
- Angel investor groups
- Accelerators and incubators
- Business groups in your industry sector
- Investments funds (some specialize in certain categories of business owners, such as women or newcomers to Canada, or in specific sectors, such as clean technology)
- Other professionals (such as lawyers, accountants or bankers, who are sure to have contacts they could introduce you to)
Remember: It's always easier to call on the right person once you've broken the ice. Build up your network and relationships. Help investors get to know you before you request financing.
How can you prepare for a meeting with an investor?
Once you've identified your potential investors, you'll need to work on winning them over. You'll need to come up with a sales pitch to help you stand out. This is your opportunity to catch their attention by demonstrating the strength and value of your proposal. Here are some key elements to consider:
Demonstrate your commitment and your skills
Investors want to know who they're doing business with before committing. From your first meeting, you should be ready to answer the following questions:
- Have you invested in your own business or project? This doesn't just mean your money: your time, "elbow grease" and sweat equity count for a lot. You need to convince them that you believe in your idea.
- Do you have access to other sources of financing? Other types of financing (grants, support from family or friends, etc.) and examples of their impact can help you show that you're trustworthy. Prove that you're committed to achieving your goals.
- What experience do you have? The key here is to convince your potential investors that you've done your homework and have the knowledge, experience and skills needed to ensure the success of your project.
Introduce your team
In business, it's also very important to have the right people around you and know who to work with when starting a business and realizing your projects. Highlight the strength and talent of your team when you make a presentation to potential investors.
Many investors will ask if your business already has shareholders. They're also likely to want information about your shareholders' agreement so they can make sure the rules are clear. If some of your team members own shares, be sure to point it out. This is a good way to foster engagement and demonstrate your values.
Clearly present your project and your business plan
You've come up with a great idea, and you believe in it. To win over your investors, you need to show them that:
- Your idea meets a real need, there's demand for it and it shows growth potential
- You have revenues or know how to generate them
- You understand the competition and your vision and execution help you stand out from it
- You've identified internal and external threats to your project
- You're open to their feedback
Remember: you need to be able to present your idea in simple, concise terms. Support your presentation by using facts and realistic assumptions
N.B.: Don't discuss theoretical issues or get into the details of your business plan. In any case, you'll be providing your business plan (and other relevant documents) to your potential investors.
Two important tips for preparing your pitch for investors
To help make everything go as smoothly as possible with your potential investors, be sure to:
- Evoke emotions and build a relationship with your audience— for instance, by sharing some anecdotes. Feel free to adapt your conversation to your audience.
- Prepare thoroughly. Practice with colleagues, mentors, friends or family members.
An investment can be a powerful driver in realizing your projects and ambitions. Now that you know what's involved, how to find potential investors and how to win them over, it's time to take the plunge! Give yourself a leg up by taking advantage of all the resources at your disposal, working with a strong team and consulting the experts. We’re here to answer your questions.
