The 3 Main Areas Small Business Investors Look at in Companies

Starting a small business is not easy. Taking it to the next level is even harder. In order to get your business off the ground and turn it into a prosperous and growing company you will need more than just hard work – you will also need plenty of working capital. And if you’re looking for a way to secure funds from a small business investor, you need to make your business attractive to them. Before you meet with a private equity investor, consider these three things that small business investors often look for in a business.


1. Businesses within their desired earnings range

There is a difference between a business that is underperforming and a business that is poorly performing. Small business investors don’t mind if your company needs a little help to reach its full potential but if it’s clear that your plan for growth is unrealistic, they may pass you by for a less risky opportunity.

Investors will already have a very clear idea for the amount of funds that they expect companies they invest in to be earning, which is typically $300k – $3M dollars. If your business is not in their desired earnings range, or is showing signs of performance struggle, you may have a hard time attracting small business investors to fund your company.


2. Businesses that fit their investment criteria and approach

Knowing what potential investors are looking for in a company is crucial, but no two companies will be looking for the same exact thing. Small business investors have different business investment criteria and approaches.  You need to take time to research and learn what matters to them and how they do business. This understanding gives you a valuable skill –the ability to recognize and acknowledge whether or not your business is a good fit with an investor. If your company doesn’t match their criteria, then it’s time to move on to another small business investor.

Some may seek to align themselves with a wide range of industries while others prefer to focus only on companies within a specific business sector. Some small business investors are most interested in supporting their own personal values and seek to align themselves with a business addressing a singular purpose such as global warming or sustainable design. Others may wish to diversify their investment impact across a range of issues from affordable housing to education. Knowing what is important to a potential investor can help you decide if the relationship is worth exploring further or if you should move on to other options.


3. A management team independent of ownership 

Having a management team independent of ownership is one very common and important investment criteria you should be aware of. Private equity firms prefer to invest in companies that have a good management team in place, with a leadership style that is less autocratic and more participative. This is important to small business investors because a capable and competent management team can make all the difference when operational changes are made. They can be a steadying presence and act as mentors to staff and stakeholders. With the right management team in place, you offer the structure, tools and support that small business investors need to feel confident in your ability to do your part.


Making your business an appealing investment

Different investors will consider a wide variety of criteria when evaluating your company for possible investment opportunities. Knowing the criteria that matters to a potential investor is a key part of making your business an appealing investment. Do some research. Create a strategic list of investors that you’d like to work with and stop wasting time chasing an investor that is simply not a good fit. Then you can focus your efforts on the small business investors you are most interested in with a well thought-out pitch and presentation that speaks to their specific interests and approaches to doing business.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.