Time-Saving Ways to Find First Investors

Strategies to help any type of business get venture funding

Q.  I have specialty women's shoe design and marketing business. Last year we sold $1.4 million in shoes that are sized for people with large feet. I can't manufacturer enough shoes to meet demand because I need more capital. I've tried to find venture funding but in my city only high tech businesses get attention. What else can I do?

A.   No matter how terrific a company's potential, most first-time entrepreneurs struggle to get their first investors. Just ask Howard Schultz, the founder of Starbucks. In his book Pour Your Heart into It, Schultz describes how difficult it was during Starbuck's early days to identify investors for his coffee store expansion. Fortunately for caffeine addicts everywhere, Schultz was persistent and didn't stop until he got the money he needed to build.

What all successful entrepreneurs eventually learn is the time-saving strategy of researching and matching their company's current status to a targeted venture fund's stated "investment criteria." Just as you wouldn't give size 13 sandals to a petite women looking for snow boots, talking to tech-oriented funds is a wasted effort when consumer-oriented funds are more likely to be your perfect fund fit.

The same rules of matching are true for private investors or "angels." Angels are more likely to invest in businesses that are related to their own area of professional expertise.

As there over 1,500 active venture funds in the US, you can expect there is considerable diversity in the types of businesses sought for investment. Some funds only invest in specific business sectors. Paladin Capital, for example, manages a fund that invests in companies developing US Homeland Security technologies. Other funds seek bio-tech companies, media companies, manufacturing companies, energy production companies or even companies that do business in China. Other funds only invest in women, Hispanic or African-American owned businesses.

Another factor fund managers use to qualify businesses for serious investment consideration is the company's stage of business growth. If you are a startup, "development stage" or a pre-revenue generating business, look for venture funds that describe themselves as "incubator" or "seed" investment funds. Companies that are more established should look for funds that invest in "expansion" stage companies or "early-to middle" stage businesses to find their perfect fund fit.

Also pay attention to a target fund's stated "average investment size" or the amount a fund will invest in a company over a period of time. GRP Partners, a Los Angeles based venture fund typically invests $3 million to $12 million in fast-growth consumer oriented companies. If your business needs just $500,000 to fund expansion, don't waste your time contacting GRP.

So, where do you turn next? When researching various fund web sites, look for funds that invest in a "broad" range of industries or list a preference for consumer-oriented businesses. Seattle-based Maveron LLC has a new $200 million fund and is seeking promising consumer oriented product and service companies. Maveron will consider growth-oriented companies anywhere in the US.

Remember, there is an investor for every promising growth company. Keep looking and before you know it you'll have more money in the bank and more shoes to ship!

Take Command Action Step

Spend some extra time analyzing how much money you will need to build your business over the next two to three years. In the "use of proceeds" section of your business plan outline what you would do with a smaller amount of money, say $2 million; and also what you would do with a larger amount of money, say $6 million. This way, potential investors will learn more about your funding needs and help you decide the right investment amount for your company's first round of financing. You can do it!

Do you need time-saving tips to help fund and grow your business? Ask Susan How! Write to small business funding expert Susan Schreter at susan@takecommand.org