SHOULD I GET AN INVESTOR?

Investment. Equity. Ownership. Whatever terms we’re going to use, the alternative to debt is equity. Of course, you can always inject your own personal cash into the business, but I suspect you’re more interested in hearing about how to get other people’s money in your business. Ok, here’s the secret….

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There’s no secret, but that’s for scrolling.

Investment is often harder to come by, especially for smaller businesses, because the returns are limited. Banks can make small loans at small interest rates because they work in volume. A single bank branch can make 15 loans in a month every month. And since they are lending out the same dollar time after time after time, they’re going to make a nice return when they tally up the interest payments on all those loans.

Investors, or those who you would like to invest, are probably not working in the same volume as banks. Not only that, but they are often not guaranteed any return at all. And any return they may make could be years down the road. Keep that in mind.

Here’s a nickel’s worth of free advice: Any investor who “just wants to see you succeed” or “isn’t really worried about their return” is either not living in our reality or is a huckster. Stay away. Investors who can help you succeed want to put their money to work. They want their money to meet your hard work and make little money babies.

Here’s how this process is going to work.

You’ve got to get your pitch down. Watch Shark Tank. Watch it again. Watch it again. Watching the pitches at the beginning of each segment is good, but watch what questions each entrepreneur is asked. Your pitch is your way in the door; your expertise on your business is what gets you a seat at the table.

If you are not the expert on your business, who is?

When you’re in front of an investor or a group of investors, your pitch should be dynamic. It should match your personality and the brand of your business. It should tell the audience who you are, who your business is, why you’re talking to them, and how you want to use their money. Again, be clear. Don’t hide things. Folks in these positions don’t like to be bullshitted, so don’t even attempt it.

Once you’ve got your pitch down, you’re going to need to have a deal structure prepared that makes sense. Are you looking for a clean deal that exchanges cash for equity? Are you looking for a long-term partner or more of a shorter-term financier? How will your investor make their money back? Are you willing to give up control for money (NO!)?

They’ve agreed to your terms and now they’re ready to send you the contract. What can you expect? Well, are you familiar with a colonoscopy?

This person is now in business with you. They have something that was once yours and you have something they love—their money. They’re going to scrutinize you. They’re going to do a full health check of your business—management, marketing strategy, sales process and funnel, financial performance and history. You need to be prepared for this. Having a business plan and projections is a great start. If you’ve been in business for any amount of time and have revenues and expenses, you should have financial statements you can share. You should also have things like SOPs (standard operating procedures) which are essentially handbooks for how your business functions. These SOPs will be a playbook for your investor to review and understand how your business operates, even at the most granular level.

In short, you should be ready for a full investigation, interrogation, audit, and inspection of your business when you are taking on an investor. Be ready to answer questions, find answers you don’t know, and fix problems you are asked to fix. Do all this while keeping in mind that this is your business. If at any time you start to feel uneasy about the deal you’re working toward with your investor, let them know your concerns and why you have them. You must be willing and ready to communicate with your investor, candidly, to work toward a strong and mutually beneficial relationship that focuses on the success and health of your business.

Tidrow Capital Group, LLC is a privately held business advisory firm that specializes in helping businesses strategize their funding needs and gain access to the capital they can use to grow with confidence.