We may be living through tough times but there is money everywhere. You just need to know where and how to look to find it. There are impressive stories of startups raising millions of dollars from venture capitalists. But this source of funds is beyond the reach of the majority of businesses. What many business owners don’t realize is that there are informal sources of capital around that anyone can access.
For instance, there are successful business owners and professionals who have money to invest. These people have a pile of cash in the bank looking for where to invest their money. Treasury bills, bonds, and money market investments are paying ridiculous interest rates these days. So they are open to alternatives assets to invest their money.
This source of funding for small businesses is rarely talked about and highly untapped. I run a business and I have invested both capital and sweat in businesses founder by other people. So I have a bit of experience with this. If you need capital to start or grow your business, in this video, you will learn how to get people like this to invest their money in your business. Before we get to it, be sure to subscribe to After School Africa for more insightful videos like this.
1. Ask for advice, not money.
I investing a fairly reasonable amount of money in the business of someone I met over the internet – I’ll call him Tom. I’ll use him as a case study to emphasize most of my points in this video. So, let’s just call him Tom. It didn’t matter that Tom was a stranger and from a different tribe. But the truth is that it took about two years from the time we met online before he pitched his business idea. The initial part of our relationship was strictly on an online mentorship basis. He reached out for advice from time to time; nothing more. By that time he presented his business for investment, we had already developed a relationship.
It’s rare for someone you don’t know on a personal level to risk their money with you. Your goal is to seek out mentors you respect and seek to learn from them. Then build a relationship, to the point where you earn their respect. Don’t go to people and act like you are entitled to their money, even if it’s your relative. You want to be as professional as possible and show that you are a serious-minded person.
2. Earn their respect
This is usually where you easily separate the dreamers from the doers. It’s easy for people to seek advice from people they admire. It’s not that hard to get people who have succeeded in an area of their life to share their experience. People love to do that. They may respect you for being curious to learn. But this level of respect will not make them part with their hard-earned money. You have to prove to them that you are a doer.
This was the primary reason I decided to invest with Tom. He didn’t just ask for advice from time to time; I observed he was acting on what we had discussed. When it was time to invest, it wasn’t a difficult decision for me to make. What you may not understand is that people need to put their money to work. But they don’t want to risk losing it. When they find a worthy candidate, they will be more than willing to invest. Earning your mentor’s respect is the most important part of the process. You don’t have to fake it or intentionally try to be impressive. If you are hungry and driven enough, you will naturally earn such people’s respect.
3. Start from somewhere
Investors want to support those that prove they can do a lot with a little. No one wants to put their money where they are not convinced it will yield returns. Businesses do fail but people who invest do so because they believe the business has a high chance of making a profit. What will make a business successful is not how smooth talking the founder is, or how detailed the business plan is. It is a combination of many things including how hungry, driven, and dedicated the founder is to the businesses. And the primary way to prove your loyalty to the business is to actually start with the little resources at your disposal. If you want to launch an app, start building a prototype. If you want to launch a fashion business, start making and selling clothes online. Just start with what you have. Prove that the business works then take that proof to potential investors.
In fact, investors are only there to help you get to the next level. By the time Tom reached out to pitch his idea, the business was already making some money; not a lot but something to prove that this thing has potential. Just start.
4. Demonstrate the profit potential of your business
Let me talk a bit more about this. The best way to demonstrate that your business is profitable is to get it to the market and get strangers to say yes to your idea. If it’s not possible to test your business on a small scale, you still need to do more than the business-plan kind of financial projection. You won’t impress anyone who cares about their money by quoting big financial projections. If your business does not have room for small-scale market testing and experiment, you need to have some credentials to back up your claim. If it’s someone who already knows what you are capable of, and you have a proven track record for honesty and doggedness in business, then you already have something going for you. When this is not the case, you need reliable sources to prove that the business has the potential for profit worth risking their money.
For most businesses, technology makes it easy to get quick market feedback. You can run polls, surveys, or questionnaires online to get some market data. But where possible, actually get a minimum version of your product out to the market and get actual people to pay money or say yes to it.
5. Demonstrate how and where the investment will be used
Why would you even ask for someone’s money if you are not clear on what the money will be used for? Don’t just say, “I need $18,000 to scale my business”. If you want to move to a bigger location, break down the money into a specific need; how much is going for rent, how much is going for marketing, and so on. Be clear about this. This also lets the investor know exactly how their money is going to impact the business. For instance, before I invested with Tom, he was living in a rural area. He needed money to move to the city, rent an office space and hire skilled labor. So I was very clear of the difference my investment was going to make and how it will potentially lead to higher revenue. Be clear about this.
6. Be Authentic
Don’t try to be superficial or overly “salesy.” Don’t try to appear perfect. Be upfront about your challenges and struggles. Any reasonable person understands that life is tough and challenging. You are more likely to build trust when you are authentic than when you are unreasonable with reality. I once invested with someone like this. He had big promises, superficial projections and was over confident. I invested a little money and it turned out to be a bad investment.
Convincing someone to invest in you is about building trust. In fact, when people are investing at the early stage of your business, they are not really investing in the business or grand idea. They are investing in you. You are the product investors are investing in. Don’t forget that.
7. Leverage Social proof
If all else fails after you have done your best to convince a potential investor, use social proof. Most people don’t like being the first investor. Investors assume — rightly or wrongly —that there is safety in numbers. If you can get a relative to invest little money, you can use that as proof that someone else has already made a bet on the business. You don’t have to disclose it’s your cousin. This can encourage skeptical investors to take action. Some people actually create an imaginary investor just to create demand and social proof. You have to be careful with this though so that it doesn’t backfire.
You see, money is everywhere. You will be amazed when you realize that people are actually looking for people they can trust to invest in their business. The problem is finding those trustworthy people. No one wants to give their hard earned money to some they cannot rely on. If you can prove to be that person someone can trust, you will be surprised at how easy it is to raise capital for your business. I hope this helps someone get money for their business.
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