7 Small Business Investors – Fund an Acquisition

Finding investors for a small business can feel like an impossible task (I know from personal experience). Small business is traditionally not an easy niche to finance.

My experience has shown that most are too small to qualify for venture capital funding, banks and the SBA do not like to make loans for SMBs unless there are plenty of hard assets and a long proven track record of profits, crowdfunding is messy, and private equity is only interested in large strategic deals and majority equity ownerships.

So what do you do? Where can you find private investors for small businesses?

List of small business investors

1. Slack Water Capital
2. Smash Ventures
3. TinySeed
4. Other VC hybrids
5. Investors for acquisitions
6. Friends and Family
7. Debt Options

Slack Water Capital

Another group that makes investments in SMB acquisitions.

Slack Water Capital is ran by Ben Bortner, who is a former operator himself (always a good sign).

They help self-funded searchers secure enough capital to shore up any equity gap missing in SBA transactions.

They will invest up to $1million per deal.

Smash Ventures

Smash Ventures is headed by Travis Jamison, a seasoned entrepreneur turned investor who only invests in SMBs. He’s the founder of several companies, including Investing.io and Snowball. These platforms serve as a hub for entrepreneur-investors, facilitating discussions on investing, startups, and specifically small businesses.

Smash.vc invests in a few different types of small businesses:

1. Via taking minority positions in businesses (they buys shares from founders, then just share in profits)
2. Via investing with search funds. Both self-funded searchers and traditional search funds.
3. And co-invests with those getting an SBA loan who need extra capital.

Tinyseed

TinySeed is much closer to traditional venture capitalists, but they march to the beat of a different drummer.

How they work:

Unlike traditional VCs, Tinyseed funds aim to support super early stage small online software companies that are interested in the bootstrap mindset, and want optionality outside of strictly aiming to build the biggest company possible and then sell it. They provide mentorship, founder networking, and help with strategy development.

It was founded by two legends in the industry; Rob Walling and Einar Vollset. Both of them were fantastic repeat entrepreneurs before they became investors, so they truly do understand how to support founders with the information they need to excel, and provide a lot of resources on top of the money from seed funding.

TinySeed gives options for people to grow and hold a small profitable business long term, or to aim for the stars and aim for a giant exit.

Optionality is its sweet spot.

Other VC-hybrid investors

Here are a few more investors who are happy to support businesses that can cash-flow instead of just aiming for unicorns.

1. Calm Capital – Formerly called Earnest Capital. Ran by Tyler Tringas, who has shown himself to be a great guy.
2. Indie.vc – Ran by Bryce Roberts of OATV

Private investors for small business acquisitions

Both firms and individuals.

1. Hardin Family Holdings – Family office managed by Bradford Hardin. Check sizes of $25k – $200k
2. Post Trellis Ventures – Ran by former acquisition entrepreneur David Page
3. Bardo Capital – Ran by Ben Tiggelaar
4. Sam Rosati – Founding partner of SMB Law Group and Pursuant Capital
5. Spiegel Consulting – Ran by Max Spiegal, whose sold his company to LendingTree.

Friends and Family

Your friends and family can be angel investors too.

Annoying to even mention this right?

Yes, and no. While no one wants to be hassled to invest in something they don’t want to, friends and family are usually best positioned to be a judge of character, potential, and traction.

MANY great entrepreneurs got their start from funding coming from loved ones.

Even Jeff Bezos started Amazon with a $250,000 investment from his parents. If it’s good enough for Jeff, it might be for you too, and it was definitely a great exchange for his family.

Any other financing options?

There are a few, some work great for certain situations, and terrible for other situations.

• SBA lenders – As mentioned earlier, The SBA (Small Business Administration) backstops loans that can be good for certain businesses in the U.S.
  • Pros: Great interest rates if you qualify. SBA 7(a) loans are for acquisitions, 504 loans are for fixed assets. Banks that like SBA include Wells Fargo, Huntington Bank, and Live Oak Bank.
  • Cons: It’s an arduous process to get approved for an SBA loan.
• Government Grants – Based on my experience these are frequently a waste of time unless you have a very specific case. Success rates can be quite low. Get help from an expert if you go this route.
• Small Business Investment Companies (SBICs). Good opportunities, but expect a lot of hassle and diligence! The SBA coinvests with private investors here.
• Crowdfunding – More and more of these peer-to-peer sites are popping up, some even servicing Main Street businesses.
• Alternative Debt – Be careful here! Debt is wonderful when used well, but when things don’t work it, it gets messy. The risks are real. Use debt with caution unless you are a very sophisticated entrepreneur doing proper interest calculations. Platforms like Lending Club, Prosper, Ondeck, and Trustleaf.
• Lines of credit from banks – Unless you have a good track record these are difficult to obtain.

Summary

Although having success finding private investors for small businesses can be difficult, the answer is to look long and hard for the small niche investor. An “angel investor” of sorts, but one who likes good returns generated from ownership in profit-focused small businesses instead of hunting for unicorn startups. They like the lower risk of cash-flow positive companies instead of only aiming for (profitless) revenue and vanity metric market size growth.

Attracting these types of investors is a bit of a hybrid exercise. You may need some resemblance of a business plan, but an experienced entrepreneur might not require the level of diligence required for a bank loan, SBICs, or a traditional SBA lender in order to form a solid partnership. They can understand the financials and profit opportunity much easier.

Hopefully this list that I provided above will help you on your journey. Good luck!

Updated: May 21, 2024