Howard Schultz’s 6 Tips for Finding Business Investors

A small business has several options when seeking potential investors. Most notably these include:

1. 1. Angel investors: Angel investment tends to come early in a new business's lifespan. Angel investors put their own money into a business (as opposed to using corporate funds). While they will surely want to see a business plan and an overall strategy for building brand equity, they are unlikely to demand instant profitability. You can find angel investors via crowdfunding sites or (most effectively) through your own friends and family. Remember that angel investors expect to eventually turn a profit on their investment; they don't regard it as a charitable donation.
2. 2. Venture capital firms: Venture capitalists (and their close business equivalents in the world of private equity) earn an income by investing in other people's businesses. Venture capital (or VC) is typically only available to businesses with a proven track record. If you're a first-time business owner, there is little chance that a corporation will invest capital into your start-up sight unseen. You'll probably need to be in business for several years before you can approach venture capital firms. However, you may be able to persuade individual members of a VC firm to make angel investments.
3. 3. Banks and commercial lenders: If you or your co-founders aren't networked in with the right investors, your best bet may be to turn to banks for early funding. Here's what's important to remember: The bank will not be loaning your business money. The bank loans will be coming directly to you, the small business owner. The reasons for this are myriad; among other things, the government doesn't want banks overly involved in the operation of small businesses. As it pertains to you, the important takeaway is that when it comes to early-stage funding for your new business idea, you must be prepared to put your personal assets on the line in order to raise money.

The Small Business Administration (SBA) is a federal agency that can assist new business owners who might not fully know how to navigate the early stages of funding. Visit their website for additional resources.

Howard Schultz, the former Starbucks CEO, will be the first to tell any small business owner that raising money is challenging. His advice? Find investors who share your values and who can be relied on when things get difficult. Here are some important tips to guide you through the process:

1. 1. Research potential investors. Before you sign any deal with an investor, do as much due diligence on them as they will do on you. Research their investment history. Interview other entrepreneurs they’ve worked with. Once you take on money, your investor is part of your company. Be vigilant about knowing who will be working with you.
2. 2. Imagine the worst-case scenario. Set up hypothetical scenarios with your investor to establish how you both will act when things don’t go exactly as planned. Candidly discuss what you expect from each other in the event of a crisis.
3. 3. Share your own story. Convey your personal story and your sense of character to your investor. Explain why you believe in the opportunity you’re presenting. Impress upon the investor why you are the right person to lead and why now is the right time for them to get involved.
4. 4. Accept the increased pressure to deliver. In taking on investment capital, your responsibility becomes bigger than yourself. This responsibility trickles down to everyone in your company. Make sure that everyone involved, particularly your senior leadership team, understands they have a fiduciary responsibility to meet numbers and to provide the rate of return they promised to investors.
5. 5. Ensure you stay in control. Give up as little equity as possible, and raise more money than you think you need. The best way to maintain control of your company is through consistent performance.
6. 6. Exceed expectations. When it comes to meeting investor expectations, aim to under-promise and over-deliver. There’s nothing better than beating projections and nothing worse than having to go back and ask for more money.

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