Should you look for investors?

Pros and cons of seeking private funding — and tips to build an effective pitch.

For years, research has shown that female entrepreneurs are less likely than their male counterparts to seek financing from investors for their startup business. Instead, they’re more likely to use credit cards and personal loans to finance their dream. But looking beyond your own bank account has its benefits, including ones you may not be aware of.

Working with outside investors may allow you to access funds for expansion and improvements without taking on extra debt. What’s more, investors often provide business guidance and access to their network of professionals, which can give you a competitive edge.

Here’s a quick overview of two common sources of investor dollars — and the pros and cons of each — plus how to decide if you should make a pitch, and what to say if you do.

A quick look at private equity and venture capital

Private equity (PE), simply put, refers to capital — money or other assets — invested in a privately owned business. The word equity refers to the value of the “shares” issued by your business to those investors.

There’s also a specific type of PE that’s gotten a lot of press lately called venture capital (VC). PE and VC investors are similar in that both groups receive a portion of your profits when you are doing well. But there are a few key differences.

• PE investors tend to fund more well-established businesses. They often expect the majority share of your company in exchange for their investment.
• VCs focus on startups and early-stage businesses. They tend to take a smaller share, which exposes them to greater risk. Why do they do it? Because they see the long-term potential in the business and believe their investment will grow over time.

Look into pitching female investors or women-led equity firms. Just as female managers and mentors enjoy helping other women succeed within business organizations, financially powerful women often are keen to help other women or grow their own business.

The pros and cons of seeking private investors

Whether you work with a VC or a PE investor, you’ll gain access to the capital you need. But it’s important to remember that, in exchange, you’ll likely be giving up some control and future profits. Here’s a quick look at some pros and cons.

Pros of seeking investors:

• You’ll avoid loan repayment, including interest payments.
• You may gain access to new perspectives, knowledge, and networks.
• You’ll share the risk if things don’t turn out as planned.

Cons of seeking investors:

• You’ll be giving up a percentage of your business — sometimes a majority stake, in the case of PE.
• You may lose some level of control and oversight regarding what you do and how you do it.
• You’ll likely be required to pay a portion of your profits to your investors in the form of dividends, though terms of the agreement can vary.

Investors aren’t the only people who can provide helpful business guidance and networking connections. If you don’t want financial strings attached to the advice you seek, reach out first to alumni associations, organizations for female entrepreneurs, your local chamber of commerce, and groups within your industry or sector.

Questions to consider before making a pitch

While an influx of capital from an outside investor can be helpful, who you work with can make a big difference. Ideally, you’ll want to make sure any potential financial partners align with your overall mission and vision — and that they can offer the specific type of additional help that you need right now.

Below are four key questions to ask yourself as you seek and vet potential investors. Each question is designed to help you make a well-informed decision that aligns your business goals with your need for capital.

• What is your timeline? Do you have the time to seek and pitch potential investors? If not, you may need to turn to more traditional means like credit cards and loans for now. What are your goals for the coming weeks, months, and years? If you’re not sure, you may need to revisit your business plan.
• What are your specific needs? Would you benefit from access to additional resources, such as new suppliers and vendors, business mentors, or other networking opportunities? Or are you just looking for monetary support? Think carefully about where you might want or need to grow, then look for investors who are willing and able to provide that help.
• What is your leadership style? Would you like to continue providing hands-on direction for your business? Are you open to new ideas and new partners chiming in on ways to change and grow? How would you feel if you were left out of key decisions regarding your business? You’ll want to be clear about boundaries with potential investors.
• What are your personal goals? Do you still want to be part of this business in the next year, five years, 10 years, or until you retire? What do you want your legacy to be? For example, are you seeking to promote equality or diversity along with your product or service? Or are you hoping to grow a business that you can pass along to the next generation?

Any outside investor will inevitably become, at least in a small way, a part of your business. So, before engaging any potential investors, it’s important you identify where you might be willing to compromise in exchange for capital and what boundaries you don’t want crossed.

Review your business plan before seeking funding or growth. Investors will want to see data and projections. Even if you self-fund, so much has changed in the last few years that your plan may benefit from a second look — and revisions, if needed.

Crafting a successful pitch

Pitching your business to investors is more of an art than a science. Keep the following guideposts in mind when you craft your pitch.

• Tell them what’s unique. Talk about what problem or challenge your business solves. Provide details about the market opportunity it addresses, including whether you’re among the first to address this need or how your approach is different than that of competitors. This will show you’re well informed on your niche.
• Use your time wisely. You’ll have limited time to make a pitch, so edit what you’ve got to say and start with the most important points. For example, unless your cause or your goals are relevant to your bottom line, you don’t need to talk much about your backstory. But if you launched an eco-friendly cleaning service for preschools because your toddler is highly allergic to traditional products, that may be a key differentiator that can spark interest.
• Share lots of data. Clearly outline for investors your business’ potential for growth, both now and in the future. Make sure to do some industry research and share any findings that support your point.
• Do some name dropping. Consider getting certified as a woman-owned business and joining professional organizations in your industry, all of which can help you meet important people. Also connect with former coworkers and alumni, as well as any experts and celebs you might know locally or nationwide. Let investors know about any endorsements you’re able to get as a result.
• Be willing to pivot. Particularly if you’re pitching to PE inventors, keep an open mind. These business experts may suggest different paths or products for your business, which can help you grow and expand.
• Ask for more than you think you need. Women tend to ask for $35,000 less on average than men do, according to Fundera. Remember that investors will make a counteroffer if they feel your initial request is too much, so go ahead and aim high.

Many investors are more aware of wanting to support more diverse businesses, including those owned by women. It may actually be helpful to be clear on your website and other materials that your business is women-owned and run.

Join the movement

Women are increasingly willing to use outside investors to support and grow their business — and they’re having more success with it these days. Still, not all funding is the same, so it’s important to seek financing that aligns with your mission and vision. Your goal is to make the choice that can best help you and your business now and in the years to come.

Sources: Women’s Business Enterprise National Council, U.S. Chamber of Commerce, Forbes, Fundera