When you need to find investors to help acquire a business, you’re not only looking for someone with investment capital, you’re looking for someone who trusts your judgment.
Sounds like a difficult search at best.
Truth is, there’s countless investors out there just waiting for a person like you to come along and ask for their money.
You just need to know where to look.
In this article, I’ve detailed six methods to find investors for raising capital for a successful business acquisition.
Methods to Find Investors – Overview
- Working With Expert Middlemen
- Finding equity partners
- Private Equity
- Traditional Financing and Bank Loans
- Seller Financing – An Overlooked Gem
- Online Investment Platforms
Method 1: Networking
Let’s start with networking. Wait, don’t groan just yet.
Networking, when done right, can be the golden ticket to finding the right investors for your business venture. Remember, networking isn’t about pitching your business idea to every person you meet.
It’s about building genuine relationships.
Think about the people you already know. Friends, family, former colleagues, or that mentor you once had a coffee chat with. Some of them might be interested in investing, or they might know someone who is.
Don’t be shy to reach out.
A simple catch-up can lead to unexpected opportunities.
Local Industry Events
These aren’t just places to learn about the latest trends. They’re goldmines for meeting potential investors.
Whether it’s a seminar, workshop, or a full-blown conference, these events often attract people with money to invest and an interest in the industry.
Here’s a few good ways to find local industry events:
- Meetup: A platform for finding and building local communities. You can attend events based on your interests or even start your own.
- Eventbrite: Lists local events, workshops, and seminars. It’s a great way to find networking opportunities in your area.
- BNI (Business Network International): A business networking organization that offers members the opportunity to share ideas, contacts, and business referrals.
Joining groups related to your business sector can be a game-changer. Not only do they often host networking events, but being a member can give you access to directories or forums where you can connect with potential investors.
- Alumni Associations: Your university or college alumni association can be a great way to reconnect with old classmates who might now be in influential positions.
- Toastmasters: While it’s primarily for improving public speaking, many business professionals use Toastmasters as a networking opportunity.
Don’t forget about platforms like LinkedIn. It’s not just for job hunting or posting corporate cringe.
Engaging in relevant groups, sharing insightful posts, or simply reaching out with a personalized message can open doors. Same goes for Facebook, Instagram, or even Tiktok.
Listen, engage, and when the time feels right, share your vision. You’d be surprised how many people are willing to support or connect you with the right folks. Following bloggers like Travis Jamison at travis.vc can also be a great introduction to investing communities.
Method 2: Working With Expert Middlemen
Expert middlemen are like the matchmakers of the business world. They’ve got the contacts, the experience, and the know-how to connect you with potential investors.
Let’s look at a few examples you might want to get on your team.
Business brokers are like real estate agents, but for businesses. They have a list of businesses for sale and a network of potential buyers and investors.
If you’re open to it, they can help you find both a business to buy and the investors to back you up. It’s a two-for-one deal. Especially if you’re not an incredibly experienced business owner or buyer, they can help you avoid major mistakes in acquisitions.
Mergers and Acquisitions Advisors
Mergers and Acquisitions (M&A) advisors are the folks who specialize in, well, mergers and acquisitions. They’re great at understanding the nitty-gritty of deals, from valuations to negotiations.
If you’re looking at a larger acquisition or a more complex deal, these are your go-to experts.
Now, if you’re thinking big, investment banks might be the route to take. They deal with larger transactions and have access to institutional investors.
While they might be a bit overkill for smaller deals, for significant acquisitions, they can be invaluable.
Where To Find Intermediaries
Here’s a few places you can try to find these people.
- IBBA (International Business Brokers Association): A leading association for brokers and advisors that provides education, conferences, and a directory of its members.
- M&A Source: A community for middle market M&A professionals. They offer education, networking events, and a platform to connect with experienced M&A advisors.
- Axial: An online network that connects business owners with capital providers, including M&A advisors, private equity groups, and lenders.
- BizBuySell: While primarily a marketplace for buying and selling small businesses, it also offers a directory of brokers.
- Alliance of M&A Advisors (AM&AA): A global organization that serves the educational and transactional support needs of middle market M&A professionals worldwide.
- FINRA BrokerCheck: If you’re in the U.S., you can use this tool to research the background and experience of financial brokers, advisors, and firms.
In a nutshell, while going solo is an option, there’s no harm in seeking out experts who can make the journey smoother. It might cost you a bit upfront, but the potential returns and saved headaches can be well worth it.
Method 3: Finding Equity Partners
Equity capital partners can be great to have when acquiring a business. These are frequently individuals or small funds that partner with entrepreneurs who are acquiring a business.
They provide some of the capital in exchange for some of the equity in the company. They become partners with the acquisition-entrepreneur.
A great example of this type of company is Smash Ventures. They team up with SMB acquisition entrepreneurs. Both self-funded searchers, and SBA loan acquirers.
They inject capital into the deal, and then offer to have their internal marketing agency help grow it if the new owner is interested. (it’s an offer, never required).
They are then happy to hold the investment forever, or flip the company when the time is right.
Method 4: Private Equity and Institutional Investors
Let’s talk about the big players in the investment world: Private Equity (PE) firms and Institutional Investors. These entities have deep pockets and a keen eye for profitable ventures.
If you’re aiming to make a significant acquisition, understanding how to navigate this landscape can be a game-changer.
When approaching these big players, it’s all about the pitch. They’ll want to see a clear business plan, financial projections, and a strategy for growth. It’s not just about the present value of the business but its future potential. So, make sure you’re prepared to showcase that.
Remember, while these entities are looking for a return on their investment, they also bring a lot to the table. Beyond capital, they often offer industry connections, expertise, and resources that can propel the business forward.
Private Equity Firms
At their core, Private Equity firms are all about investing in companies, growing them, and then, ideally, selling them for a profit. They have substantial funds and are often on the lookout for promising businesses to add to their portfolios.
If your target business has a solid track record and growth potential, a PE firm might just be interested.
Here’s a few examples of PE firms:
- The Blackstone Group: One of the world’s leading investment firms, Blackstone has a diverse range of funds and investment strategies. They have a significant presence in various sectors, including real estate, private equity, hedge fund solutions, and credit.
- KKR (Kohlberg Kravis Roberts & Co.): A global investment firm with a multi-strategy approach, KKR has investments in private equity, energy, infrastructure, real estate, and more. They have a long history and have been involved in numerous high-profile buyouts.
These are entities like pension funds, mutual funds, and insurance companies. They manage vast sums of money and invest in a range of assets, including businesses. While they’re more conservative than VCs, they can be a good fit for stable, established businesses with consistent returns.
In essence, while securing investment from PE firms or institutional investors might seem daunting, it’s all about alignment. If your vision for the business aligns with their goals, you might just find yourself with some powerful allies on your acquisition journey.
Method 5: Traditional Financing and Bank Loans
While it’s tempting to chase after the big fish in the investment pond, sometimes the old-school route of bank loans can be just the ticket for your business acquisition needs, especially if it’s a small business.
One of the perks of going the bank route is clarity. The terms are clear, there’s a set repayment schedule, and you don’t have to give away any equity in the business. It’s a straightforward transaction: you borrow, you buy, you repay.
Let’s dive into the ins and outs.
The Bank Loan
The classic. Walk into a bank, present your business case, and if all goes as planned, walk out with a promise of funds.
Banks are generally more risk-averse, so they’ll want to see that the business you’re buying has a stable financial history. They’ll look at things like credit scores, both yours and the business’s, past financial statements, and cash flow projections.
But in many cases, a bank can be a surprisingly effective way to get a business loan.
Small Business Administration (SBA) Loans
If you’re in the U.S., the Small Business Administration (SBA) can be a fantastic resource. They offer loans specifically designed for business acquisitions. While the process can be a tad more paperwork-heavy, the terms are often favorable, with longer repayment periods and competitive interest rates.
In a nutshell, while it might not have the glamour of venture capital or private equity, traditional financing is a solid, dependable option for many business acquisitions.
If your business qualifies for the loan, that is.
Method 6: Seller Financing – An Overlooked Gem
An often overlooked method, but a possible game-changer is seller financing. It’s when the seller lets you pay in installments. Kind of like financing the business acquisition with the income from the business itself.
Popular in the real estate world, seller financing is really quite an elegant solution in online business transactions as well.
Why Sellers Offer Seller Financing
You might be wondering, “Why would any business owner do this?” Well, there are a few legitimate reasons to go down this path.
- The market is a bit slow, and they’re having trouble finding a buyer.
- They believe in the business’s potential and think they’ll get a better deal by waiting a bit for their money.
- They want to ensure a smooth transition and believe that working with the buyer is the way to do it.
Terms That Suit Both Parties
This is where things get interesting. Everything’s up for discussion – the down payment, interest rate, repayment schedule, and any other terms. It’s essential to strike a balance that works for both parties.
(And, of course, get everything in writing.)
Seller Financing Can Be A Win-Win Deal
Seller financing can be a win-win. You might get more favorable terms than with a traditional bank loan, and there’s a level of trust and collaboration with the seller. After all, you’re both small business owners of the same company.
Plus, since the seller has a vested interest in seeing the business succeed (they want their payments, after all), they might be more willing to offer guidance or support during the transition.
The Caveats of Seller Financing
Like all good things, there are some things to watch out for.
If the business doesn’t perform as expected, you’re still on the hook for the payments. And if you default, the seller might have the right to take the business back.
So, as always, it’s crucial to do your homework and ensure you’re making a sound investment.
In the end, seller financing is one of those options that many folks overlook, but it can be the perfect solution in the right circumstances. If you find a willing seller and can negotiate favorable terms, it might just be the golden ticket to your business acquisition dreams.
Method 7: Online Investment Platforms
While traditional methods have their charm, the online world has opened up a bunch of opportunities to connect with investors and secure capital.
From crowdfunding platforms to specialized investor networks, the internet is teeming with modern solutions for savvy acquisition entrepreneurs. You can connect with investors from all over the world, get instant feedback, and streamline the investment process with online tools and contracts.
But as with all things online, it’s essential to do your due diligence.
Ensure platforms are reputable, be wary of too-good-to-be-true offers, and always prioritize secure and transparent transactions.
Let’s explore some of these digital avenues.
Websites like Axial or CircleUp act as middlemen, connecting business buyers with potential investors. You create a profile, list your acquisition needs, and voilà, you’re in front of a pool of investors who are actively looking to put their money to work.
Platforms like Kickstarter or Indiegogo might be famous for funding cool gadgets or indie films, but there are similar platforms, like StartEngine or Crowdcube, where businesses can raise capital in exchange for equity.
It’s a unique way to tap into a broader pool of smaller investors rather than relying on a few big ones.
If you’re looking for a loan rather than an equity investor, this can be an avenue worth exploring.
Virtual Networking Events:
With the rise of remote work and virtual events, there are now countless webinars, online conferences, and virtual meetups where you can connect with potential investors from the comfort of your home.
Before Choosing a Method – Figure Out How Much Capital You Need
Before you scurry off to pitch investors with your business plan in hand, let’s talk numbers. How much do you really need?
You’ve probably figured out the purchase price of the business.
But that’s just the start.
Think about any additional costs that might pop up. Maybe the existing business needs a tech upgrade, or perhaps you’ll need some extra cash to keep things running smoothly during the transition. It’s always better to overestimate a tad than to find yourself short on funds later on.
Knowing your numbers shows investors that you’re a serious business owner, but it also gives them confidence in your planning skills. (Plus, it helps you avoid the awkwardness of asking for more money later.)
Capital Calculation Checklist
Here’s a handy checklist to you can use to calculate your capital needs:
- Business Valuation: Determine the value of the existing business.
- Due Diligence: Conduct a thorough checkup of financial statements and operations and identify any potential risks or hidden costs.
- Working Capital Assessment: Estimate the day-to-day operational costs for the transition phase.
- Capital Expenditures: Identify any immediate investments required (equipment, technology, infrastructure, etc).
- Integration Costs: If you’re merging the business, think about integration costs.
- Contingency Fund: Set aside a portion of capital for unforeseen expenses (recommend 10-20% of capital).
- Legal and Professional Fees: Costs for lawyers, accountants, etc consultants assisting you with the transition.
- Review and Adjust: Review and adjust anything you might have overlooked.
Acquiring an existing business doesn’t have to be out of reach. It’s not difficult to find investors for buying businesses. Regardless if it’s just a low stakes investment in a small business or a major acquisition of an established business, you can find the right people to raise money and back you up.
If you’re still unsure about where to go, get in touch with us at Smash.vc. We love to invest in small businesses and entrepreneurs acquiring small businesses.
Just remember to calculate everything thoroughly before running off to shake hands with the first potential investor out there.