Stop Wasting Time! INVESTORS You Must Know in 17 Minutes

What's up, Believe Nation? It's Evan Carmichael. 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 7 types of investors for your business and how to find them. 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? Lemme know." So today I'm going to give you the 7 different kinds of investors and how to find them for your business. Number 1 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, I need to get the money in to help me grow my business. Banks are the least friendly towards startup entrepreneurs of all, almost all the investment classes. Banks don't want to help entrepreneurs. Understand what the business that 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 startups. 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 3 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 have 2, usually 3 3 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 are like, "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 you usually 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. Number 2 is friends and family. It's also called blood money. Here we're looking at up to around $50,000. So if you need, you know, 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, an uncle, an aunt, you know, something like that. It's usually not your most immediate connections, but it's 1 or 2 or 3 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. You know, you can play the guilt card. Remember when I helped you move? That piano, you know, to that other apartment that you had, and I've been here for you, right? Like, you're playing on heartstrings, which investors, like, sophisticated investors won't care as much about, but friends and family will care more about. And basically, they, 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 whatever way they can. The thing to be careful about is, do you want them to be part of your company or not? Like, do you want 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? You know, 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 kind 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, friends of friends to get that funded. Way number 3 are angels. Angels are angel investors. They are usually successful individuals who've built a business for themselves. They're entrepreneurs or they're 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 are 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 because 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 they take a portion to invest in the startups because they want a little excitement. They wanna be able to brag to their friends, and they want to see something exciting happening 'cause 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. And at the start it can be hard, 'cause you need the money, right? You need money to grow and 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, step, they look at who your angel investors are. And if, 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 your money from. A great way to start is just through connections, uh, 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, cuz 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 30 different accountants I can go and meet through introductions, through friends and family. And tell them what your idea is. And now it's on their 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 6 to 8 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 not 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 at a slow-paced industry, if you're in a retail store, like, that's gonna 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. Under $50,000, again, you're looking at friends and family. Over $250,000, you're looking at more of an institutional investor. We're looking at venture capital and other kinds. It's hard for a single person to write, you know, 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. All right, way number 4 is venture capital. This is the big daddy. These are 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 $250K range. They don't really want to be there. They want to be in the millions range because again, the amount of work work that's required in doing a deal is pretty much the same. If a VC is putting $5 million into a company, the amount of work to research and do their due diligence is pretty much the same, if not less, than doing the work on a $250,000 deal. Because by the time you've hit that mark, you've had some success, you have more traction, 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 wanna play in that low range, but they're hoping that if they give you $250K, then you'll, you'll come back for the next round of $1 million, the next round of $5 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 4 to 5 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 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 $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. There are a lot of times where somebody would come to us and say, we want to, you know, raise money, we need, we need half a million dollars, and half of it's gonna be used to buy out our first angel investor. Not interested. They don't want to buy out another investor, right? They want to see the money's being used to grow the business, and that your big payday is not coming from your salary. It's gonna 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 gonna get paid. So you wanna make sure you're keeping your salary expectations really in check, getting paid less than industry standard because your heart and soul, blood, sweat, and tears are going into building this business. Way number 5 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 preselling your products, your services before you even launch it. And so this is where Kickstarter comes in and all of those kind 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, right? 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 long time and it takes away from you actually building your business. You're spending, 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, 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. Way number 6 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, 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 the 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, you know, they don't care. They don't care about that. They care, is this a good idea? You know, do I believe in this? Is this going to make money? Does this have a lot of opportunity? Where 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 in. 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, you know, every little bit can help. It's just you may have to wait months and months and months to first get an approval, just to get a yes. You may not even get a yes because you apply and lots of people are applying and, you know, 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. You don't— 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 deal with governments, you know, 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 able to actually get the money. One other thing is just making sure too in the program that 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&D, it can only be used to hire people. Sometimes the use cases 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 4 or 5 years after you've gotten that money, which could really hurt you. Like maybe your goal is to sell in 3 years and I can't sell because I made this deal with the government, 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 gonna be a lot of them when dealing with the government. And the number 7 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 t-shirts and they make t-shirts, they may give you the t-shirts, right, 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 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. Like, 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 gonna exchange product with you to help you get to where you wanna 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 Bim Singh asked me to. Those are my 7 tips, my 7 ways on the different kinds of investors and how to find them. I'd love to know what do you guys think, what was most applicable or interesting for you, what are you going to apply immediately to your business? Did I miss an 8, 9, 10 you want to add to the list? Share it down in the comments below. If you want to vote on the next 7 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 Quinton. 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 means a lot to me, and I'm so glad that you enjoyed the reading. Thank you guys again for watching. I believe in you. I hope you continue to believe in yourself and whatever your one word is. Much love. I'll see you soon.