My one word is believe, and I believe
that you have something special to offer
and I’d love to see it explode,
so that you can help change the planet.
So, to help you on your journey today,
we’re going to look at the seven types of investors
for your business and how to find them.
– [Narrator] Nine, eight.
(upbeat pop music)
Seven.
– So, one of the most common questions I get asked
from entrepreneurs is, how do I fund my business?
Where do I get investors from?
I have big dreams, I want to grow super quick
and I need money to do it.
How do I find the people to help me?
What are they looking for?
What’s the process? Let me know.
So, today I’m going to you the seven different kinds
of investors, and how to find them for your business.
(upbeat pop music)
Number one is banks.
Banks are the ones that people seem
to think about right away.
People think I need to go and get money from a bank.
I need to get a loan.
I need to apply to get the money in
to help me grow my business.
Banks are the least friendly towards startup entrepreneurs
of almost all the investment classes.
Banks don’t want to help entrepreneurs.
Understand what the business of the bank is in.
They want to give money to people who are going to pay them back.
And startups have the highest failure rate
of any kind of business, right?
If you’re looking at different classes,
so why do I want to give money to a startup?
I don’t, banks don’t want to give money to,
it’s not what they have in their marketing
and their promotions,
but banks don’t want to give money to startups.
Most banks, if you don’t have at least three years
of history, of financials, and of growth,
and of making money, then you need
to personally guarantee the loan.
And so, then it’s really just depending
on your credit history.
If you have good credit history, you can get a loan.
If you don’t have good credit history, you can’t.
But really, you have to wait until you two, usually three,
years of traction with a business that’s growing
and making money before they’ll ever give you a loan.
And so, a lot of people think,
“Well, I need the money to get there.
“Once I get there, I don’t need your money anymore,”
and that’s always the catch 22, where usually you
get rejected because your business just hasn’t been
around long enough, unless you have good personal credit.
So, banks are definitely an option, but it’s usually
not the best option for entrepreneurs.
(upbeat pop music)
Number two is friends and family.
It’s also called blood money.
Here, we’re looking at up to around $50,000.
So, if you need from $10 to $50,000
and you’re looking for an investor,
it’s usually going to come from friends,
family, kindergarten classmates, you know,
a friend of a friend, then an uncle, an aunt,
you know, something like that.
It usually not your most immediate connections,
but it’s one or two or three degrees away,
a friend of a friend of a friend kind of thing.
And if it’s $50,000 or less that you need,
it’s usually an unsophisticated investor.
It’s not a big-time investor because
it’s just not worth it to them.
The amount of work to understand your business
to help mentor and train you,
it’s just not worth it to them.
And so, that’s where you usually deal
with more unsophisticated people.
Usually, they look for like they know you,
they like you, they trust you.
They want to see you be successful.
Here you can play the guilt card.
Remember when I helped you move that piano
to that other apartment that you had.
And I’ve been here for you, right?
Like you’re playin’ on heartstrings,
which investors, like sophisticated investors
won’t care as much about,
but friends and family will care more about.
And basically, they want to see a return,
but it’s more that they like you, they know you,
they want to see you succeed, they want to try
to help out in every way they can.
The thing to be careful about is,
do you want them to be a part of your company or not?
Like, do you want Aunt Jill to be in your business?
Do you want her helping manage it?
Do you want to be taking her advice?
Are they just giving you money,
or are they going to play an active role?
Is it going to be a problem when you get together
at Thanksgiving and Aunt Jill is there?
Just those kinds of things to figure out.
If it doesn’t work out, what happens
with your relationship with Aunt Jill
and the family and all that stuff?
It can go sideways, so you really have to be careful
about working with friends and family,
but it could also work out in a positive sense.
But if it’s under $50,000, you’re really looking
at friends and family, relatives,
friend of friends, to get that funded.
(upbeat pop music)
Way number three are angels.
Angels are angel investors.
They are usually successful individuals
who built a business for themselves,
they’re entrepreneurs, or they’re a successful professional,
and they’re looking to invest money
into a company to make some more money.
A lot of times, there’s a category gap
between the entrepreneurs, the people
who are sophisticated investors,
the people who used to taking companies
and ramping them up quickly
versus just people who have money.
And there’s a term in the industry called DDI,
which is dentists and doctors with disposable income.
A lot of times, these guys have a lot of money,
’cause they’re a dentist and they make a lot of money
in their practice, and they, as my dentist explained,
are kind of bored in their life,
and they like to live through their investments, right?
So, they’re buying stocks, and real estate,
and all this other stuff, and then take a portion
to invest in the startups, because they
want a little of excitement.
They want to be able to brag to their friends,
and they want to see something exciting happening,
because their own business is kind
of boring and traditional.
And so, that’s a dangerous kind of investor to look for.
Anytime you’re bringing somebody on at that level,
you ideally want somebody who can help you,
who can bring value to you, give you connections,
open up doors to you, not just give you money.
So, it’s dumb money, you don’t want dumb money.
You want smart money.
You want people who care, who’ve done this before.
It’s not their first rodeo, and they can
open up doors and connections for you.
And so, it’s really important.
At the start it can be hard because you need the money.
You need the money to grow in scale
and build this thing up, and you don’t want to wait,
but if you have a bad angel investor,
it’s hard to get rid of them.
And it can hurt your future potential rounds.
If you ever want to go get venture capital in the next step,
they look at who your angel investors are.
And if it’s a bunch of people with no experience
and they’re just giving you money,
it’s really hard to get the next round.
So, you really want to be careful
who you’re getting the money from.
A great way to start is just through connections,
lawyers, accountants, bookkeepers, those kinds of people.
Talk to your lawyer, talk to any lawyer that you can kind
of make a connection with through friends, family,
ask them who their lawyers are, who their accountants are.
‘Cause those guys also do legal work and accounting work
for bigger players, for angel investors.
Most angels are not, they don’t have a website.
They don’t say I’m an angel investor
because then they get pitched constantly.
A lot of the angel investment deals happen
through word of mouth and networking.
And so, talking to lawyers and accountants
are a great way to be able to do that.
So, I try to make a list of 30 different lawyers
that I can go and meet,
and three different accountants I can go and meet,
through introductions through friends and family.
And tell them what your idea is,
and that’ll turn the radar and they’re thinking about it.
For angel investors in general, they want to see
that they’re making a return, right?
They want to be able to get out in six to eight years,
so there’s a path to exit and get their money back.
And they want to be making around 25 to 30% per year.
That’s what’s going to happen at the beginning.
You’re probably going to lose money at the beginning,
but net, like when you end up selling,
they’ve made a 25 to 30% annual return on their deal.
So, that’s not possible in every industry, right?
Like if you’re in a slow-paced industry,
if you’re in a retail store, that’s going to be hard
to get those kinds of returns.
So, it may not be a good fit for you
to be going after angel investors,
but in general, that’s what they look for.
And the range is between 50,000 and 250,000.
On the 50,000, again, you’re looking at friends and family.
Over 250,000 you’re looking at more
of an institutional investor, who are looking
at venture capital and other kinds.
It’s hard for a single person
to write a million dollar check.
It’s possible, but most angels play in a smaller arena.
And so, that’s kind of the range that you’re looking for
and how to get introduced to them.
(upbeat pop music)
All right, way number four is venture capital.
This is the big daddy.
This is the people with tons of money.
They raise funds of hundreds of millions of dollars
and try to invest it into high-growth companies
to see major returns.
Angels start in the 250 range,
they don’t really want to be there.
They want to be in the millions range,
because again, the amount of work that’s required
in doing a deal is pretty much the same.
If a VC’s putting $5 million into a company,
the amount of work to research
and do the due diligence is pretty much the same,
if not less, than doin’ the work on a $250,000 deal.
Because by the time you’ve hit that mark,
you’ve had some success, you’ve had more traction,
and you’re more of a known quantity.
Where it’s a lot of work to invest
and to understand a newer company.
And so, they don’t really want to play in that low range,
but they’re hoping that if they give you 250K,
then you’ll come back for the next round of a million,
the next round of five million, and continue to grow.
Venture capitalists are also looking
for 30%, 25 to 30% annual return.
And they want to be out shorter.
So, they want to be out in four to five years typically.
They want to see that there’s a path to exit,
so that you’re going to get acquired, somebody’s going to buy you.
Or you’re going to go IPO, so you’re going to go
to the stock market.
Not that many companies make it to the stock market.
So typically, they want to look for acquisition.
So, as part of your plan, you want to show
who’s going to buy you, that there’s an appetite,
that there’s some big company or multiple big companies
that will potentially want to buy you up
as you build and scale your business.
And so, understanding that is going to be super important
whenever you go and make a pitch.
And again, venture capitalists,
now these guys do have websites.
You can cold pitch, you can cold email.
I was on the other side of that.
I was receiving the cold pitches
and emails from entrepreneurs.
99% of people get rejected, so your better path in
is again, through a connection,
through a lawyer, through an accountant.
Again, those are great potential paths for you.
Through your angel investor that you made a smart decision
with to get the right one to help bump you up.
And again, remember, for any investor,
they want to look at use of proceeds.
That’s how you’re going to be spending the money.
They want to see that you’re spending it on smart things.
So, you’re paying yourself a salary,
but it’s not an insane salary, right?
Like you’re not paying yourself a 100K
to start this business.
They want to see that everything’s going into the company.
They’re not interested in paying you a huge salary.
They’re not interested in buying out another investor.
Or a lot of times where somebody would come to us and say,
“We want to raise money, we need a half a million dollars,
“and half of it’s going to be used
“to buy out our first angel investor.”
Not interested.
They don’t want to buy out another investor.
They want to see the money’s being used to grow the business,
and that your big payday’s not coming from your salary,
it’s going to be when you build this company
and eventually sell it.
Your investment is in the shares
of owning that business and then being acquired,
much more than how much you’re going to get paid.
So, you want to make sure you’re keeping
your salary expectations really in check,
getting paid like less than industry standard,
because your heart and soul, blood, sweat,
and tears are going into building this business.
(upbeat pop music)
Way number five is through customers.
And this is a great path to do it,
where you’re not giving up any equity in your business.
And this is where you are pre-selling your products,
your services before you even launch it.
And so, this is where Kickstarter comes in,
and all of those kinds of companies
where you are marketing a product,
maybe you build a prototype, you make a video of it,
you show off what it can do,
and before ever going into production,
you’re getting orders and sales.
This is a fantastic way to do it,
because it allows you to test something.
Before ordering 10,000 of whatever product
you’re going to make, you make one, you show that it works,
and then you create a campaign to market and promote it.
And if it takes off, then you have the funds
to be able to go out and do it.
You don’t need to go out and raise capital from anybody.
And you don’t lose a chunk of your company.
And you’re not saddled with a ton of debt.
And if it doesn’t work out, then you don’t make the product,
and all you’re out is that one prototype,
which cost you some money and probably tons
of time and effort and labor,
but it wasn’t this huge gigantic expense.
And so, if you can do it, it’s a fantastic way
to get the funding for your business.
And also, less of a dog and pony show,
where typically like to raise money from venture capital,
VCs, angels, even friends and family can take a lot of time.
And it takes away from you actually building your business.
It’s almost a full time job pitching to venture capitalists,
which is time you’re not spending on building your company.
And so, if you can get those pre-orders,
especially at the beginning, and show that there’s interest.
Like, if you have interest, and you have sales coming in,
it’s way easier to then get expansion capital
from friends and family, from angels,
from venture capitalists to really build it
to the next step up.
But I definitely encourage you to explore getting customers
to fund it, because you’re not risking anything
besides a little bit of time,
and you’re not giving up a huge chunk of your company.
(upbeat pop music)
Way number six is through the government.
Governments, depending on where you live,
will have various different programs.
They have it at a city level, at a state or province level,
and at a national level, lots of different programs
where you can either get a grant,
which means they’re giving you money
and you don’t have to pay it back.
Or they give you a loan where they’re giving you money,
but you have to pay it back with interest
and at various rates.
A lot of times, government programs are
for specific kinds of entrepreneurs.
So, if you are an immigrant entrepreneur, you can qualify.
If you’re a woman entrepreneur, you can qualify.
If you’re a young entrepreneur, you can qualify.
If you’re a tech entrepreneur, you can qualify.
And so, more than anything else, the government really cares
about the background of where you’re from,
where for most other investors, angels, VCs,
friends and family, they don’t care if you’re a woman
or a man, or Hispanic or.
They don’t care, they don’t care about that.
They care, is this a good idea?
Do I believe in this?
Is this going to make money?
Does this have a lot of opportunity?
With the governments, they care a lot more.
They have lots of funds designed specifically
for different purposes.
And so, you have to figure out kind of where you fit it.
The thing with government that is really frustrating
is that it takes a long time.
And so, it’s a lot of work to find the right program.
The funds typically aren’t huge,
but I guess every little bit can help.
It’s just you may have to wait months and months
and months to first get approval just to get a yes.
You may not even get a yes, ’cause you apply
and lots of people are applying, and it’s a competition.
And then even once you get a yes,
you have to wait for that money to come in.
And by that time, your company may be dead, right?
Like we need the money now.
Entrepreneurs are, you know, we don’t have patience.
We want it to go, let’s go, we’re driving forward.
I don’t want to wait months for anything.
And so, that’s the biggest drawback to do with governments.
The chance of you getting it,
then being able to wait for them to give you a yes,
and all the paperwork, and then being
with actually get the money.
One other thing is just making sure to, in the program,
the how you use the money is also specific
to a lot of different government programs.
So, like it can only be used to buy product.
It can only be used for R and D.
It can only be used to hire people.
Sometimes the use case is super specific.
And then also, sometimes the programs prevent you
from doing something that may
be outside the interests of the government.
So, in Canada, we have programs that you can get funding
for your research and development,
but it has to stay in Canada.
So, you can’t sell your company to a US based company
four or five years after you’ve gotten that money,
which could really hurt you.
Like maybe your goal is to sell in three years,
and I can’t sell because I made this deal
with the government, it could be an issue.
Or it might be within your state.
Like everything has to stay within the state,
which could hand-tie you from being able
to sell your company or expand elsewhere.
So, just pay attention to the fine details,
’cause there’s going to be a lot of them
when dealing with the government.
(upbeat pop music)
And the number seven way is through suppliers.
A lot of times, the suppliers that you have to buy stuff
from will be potential investors for your business.
One, in either giving you product, giving you supplies,
like whatever they’re selling you.
If you want tee-shirts and they make tee-shirts,
they may give you the tee-shirts
in good faith or like as owning a piece of your company.
And so, that’s how it gets started.
Or just maybe on a discounted basis.
Like they believe in your plan.
They’re not taking a piece of your company.
They see your vision of where you want to go.
They give you the first run at a really discounted price
to help you get started, and then they’re hoping
to buy your future business as you get going.
As an entrepreneur at the beginning,
you don’t have a lot of money.
You don’t have a lot of resources.
So, you have to be really resourceful, right?
You’ve got to be really creative.
And one of the ways to do that is through your suppliers.
So, look at every deal that you’re making
with your suppliers, try to find the best deal possible.
Try to get creative.
It might be you helping them with their marketing
or their website, which may be outside
of the realm of what you’re selling.
But because you’re doing that,
they’re going to exchange product with you
to help you get to where you want to go.
There may be some of that contra stuff
at the beginning to get started.
Or looking for any other way that you might be able
to get the product for free or at a discounted price,
or potentially have them invest in your business,
because they can provide a lot more value
in the long term, to get those products in
and help you get your business started.
So, thank you guys so much for watching.
I made this video because Bhim Singh asked me to.
Those are my seven tips, my seven ways
on the different kinds of investors and how to find them.
I’d love to know what do you guys think?
What was the most applicable or interesting for you?
What are you going to apply immediately to your business?
Did I miss an eight, nine, 10 you want to add to the list?
Share it down in the comments below.
if you want to vote on the next seven ways video
that I make, there’s a link in the description.
Go check it out, go have your say.
Cast your vote and I might make it in a future edition.
I also want to give a quick shout-out to Kelly Quittenton.
Kelly, thank you so much for picking up 10 copies
of my book, Your One Word, and giving it
to your friends as gifts.
I really, really, really appreciate it.
Thank you for all the support, the YouTube video,
everything, it means a lot to me,
and I’m so glad that you enjoyed the read.
Thank you, guys, again for watching.
I believe in you, hope you continue
to believe in yourself and whatever your one word is.
Much love, I’ll see you soon.
”
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