Raising capital for business ventures is considered to be one of the most challenging parts for entrepreneurs, especially in the early stages of the business. There certainly are many options, including but not limited to:
- angel investments
- venture capital
- business accelerators (and business incubators)
- bank loans
Making a final decision on what works best for your unique situation and business can be a little perplexing. One of the compelling trends that I have noticed over the last few years is that the interest and demand of private investors for small businesses has been gaining momentum.
Whether it is Artificial intelligence, Blockchain projects, real estate, or any other business industry, private capital from private investors has been changing the investment landscape in a very positive way. I do not see it changing any time soon either as I believe private investors will remain an indispensable part in business finance.
What is the definition of a private investor?
The definition in the Cambridge English Dictionary states that private investors are people who invest money, rather than companies or financial organizations that invest money.
Who are private investors?
Allow me to expand the Cambridge definition of a private investor: private investors are wealthy individuals looking for projects that need funding to invest their capital and accelerate business growth.
They have different business interests and risk tolerance, which is why there is a variety regarding the projects they are willing to fund. Not only do they have business industry preferences, but they also prefer the stages of the companies that interest them.
A common myth is that private investors are solely looking for established companies with financial difficulties or in need of capital to expand and outgrow their enormous competition.
Similar to business incubators, some private investors might only be interested in new projects with nothing but a brilliant idea. On the other hand, similar to business accelerators, another private investor type specializes in startups.
Many entrepreneurs consider private investments as one of the best alternatives for businesses unable to access traditional bank financing. An important distinction to consider is that an investment is not a loan. Private investors looking for projects to fund will generally not be interested in loaning their capital to earn interest. They are highly interested in exchanging their money for a fair share of equity in companies they hope will grow in value and profitability. Depending on the investor, they may be interested in a management role and the strategic decisions of the company.
Where and how to find private investors
Capital access in the economic conditions and with the help of modern-day technology is not nearly as difficult as it used to be. Even small businesses have an extensive range of investment options to consider.
There is an important step that entrepreneurs must conquer before focusing their time on how to find private investors. That step is called solid preparation.
- Create a business plan that outlines how you will use the capital of your potential private investors. Private investors need to see your organized business plan, current financial situation, and the potential for short-term and long-term growth. Include realistic forecasts and detailed business procedures.
- Conduct a careful market analysis to improve your services and connect with clients. Include realistic forecasts and detailed business procedures that reflect long-term growth.
- Decide how much money you need and compile the plan into a presentation.