Off and Running..
You have signed up a BBB accredited funding network, created a profile and made the final edits on your business plan. You are finally ready to post your funding request, upload your business plan and start contacting investors. You wait for a period of time, and you get some solid responses to your postings and your inquiries.
You see a first name and a last name initial, and one person has a company listed in their description response. The other two responses don’t mention a company, just a first and last name, and only one of the two potential investors has a telephone number. What now?
What Next After I Get Some Responses?
First, you have to look at what types of funding providers and investors generally belong to an accredited funding network. The idea of being part of an investor’s network is appealing to most investors and funding providers because it creates an organized approach for finding many great start-up companies and funding requests without having to sift through hundreds of telephone calls and written funding requests that may not suit their interests. Some funding network members enjoy a degree of anonymity, while some want to promote their company when they do find the right investment seeking matches.
Some investors may ask for your business plan, or they may ask that it be posted online or sent to their email address. Some investors may not want anything sent to their email address until they get a chance to further evaluate what you are trying to accomplish.
To NDA or Not to NDA, That is the Question
Start-ups and other business ventures that require funding will sometimes wonder: What if the investors steal my idea? Yes, this can be a legitimate concern. However, to appreciate the full picture of communicating with investors you need to know that 99% of those on a trusted funding network are out to make money by looking at many, many deals and would rather benefit from your idea by investing and not by stealing. Some investors don’t mind signing non-disclosure agreements ( NDAs), while some do, and some have their own NDAs that they may provide.
Who are These Investors?
A trusted funding network that is accredited usually pre-qualifies investors and funding providers with telephone interviews and/or by checking out websites, but that would be the extent of the prequalification process. The process is designed to not exclude the small individual investor that may have $20,000 to invest in a good business idea and to not limit larger individuals or groups that prefer a degree of anonymity. Usually the initial prescreening process weeds out most of the scammers trying to pose as investors. Ultimately, practicing due diligence is up to you prior to releasing any information other than your business plan and your telephone number and prior to paying fees.
Funding providers typically found on a trusted and accredited funding network include Angel Investors, Venture Capital, Individual Investors, Investing Groups, Institutions, Foundations, Micro Lenders, Banks, Brokers (nominal prepaid fee) and Brokers (paid at closing).
How Do I Know if an Investor is Legitimate?
Typical red flags indicating an investor may not be legitimate include not having a track record of successful deals and representing themselves as having been in business for a period of time though you can’t find information on their company through the state or country of their office of origin. Another red flag is an investor that wants an upfront fee prior to financing. However, there are successful brokers that have a proven track record that do require a nominal fee.
It’s a good practice to have an experienced attorney do some research on potential investors prior to accepting any funds. It works the other way too. Investors should never release funds without investigating business investments. If you find an individual wealthy investor, you may want to travel to meet him or her as you establish your correspondence. It is not uncommon in larger deals that are $1million or more for investors to require a nominal fee be placed in escrow while they pay to conduct some due diligence of their own, appraisals etc. The criteria for return of the funds should be spelled out.
Preparation is Important
When you decide to move forward with an investor or funding provider it is always good to clearly have your terms defined prior to your postings and before contacting them. In that way, if an investor starts negotiating any additional terms, you are ready to defend your position and stand your ground. It is important to be patient and not to rush. Let the investor make the next move.