whom to ask for moneyGot a brand-new or growing business? You probably need some cash. Most businesses need investors to really get off the ground or get to growing in the right direction. But before you trot off to the bank, hat in hand, think about this: You have a lot of friends, family, acquaintances and connections out there. They may not be rich, but they might be your best choice for investors. After all, before there were banks, there were loans between people who trusted one another, so asking people you know to contribute to your dream isn’t a particularly strange idea. Five percent of U.S. adults have invested in someone else’s business in the past few years, and in those private investments, 42 of the investors are close family members of the business owner (parent, spouse, child or grandparent). Another ten percent of private investors are “other family,” so that means that, in the case of private investing, more than half of private investors are related to the entrepreneur to whom they are giving money. The rest, of course, are unrelated, so they often come from the circle of acquaintances, friends and networking connections that the entrepreneur has established.

You might have investors in your very own family or social circle, ready to help your business grow. Like many business owners before you, you might do best with help from several small investments, rather than a single big investment (again, most of your circle might not have a ton of cash lying around). Your personal network is your biggest asset when pursuing small investments into your business. So how do you decide whom to approach? Entrepreneur.com has a great article about this very topic, and here’s the paraphrased list of steps for finding small investors:

1. Brainstorm a list of people – This is no small task. You need a big list with just about everyone you know on it. Family, friends, people you’ve met through work, etc. The list will range from those who know you best, to those with whom you have a trusting relationship, to those you might not know well but who might be interested in seeing you succeed.

Your best course here might be to break up your networks into three circles around you: the closest is your friends and family; the next circle is for more distant family and more casual acquaintances; and the furthest circle is for people you know but don’t know well, or don’t speak with all that often. Once you get the levels set in your mind, filling them becomes easier. The inner circle could be your immediate family, closest friends, in-laws, people with whom you’d trust your kids, etc. The next circle out could be work associates, people you know from church, people with whom you volunteer, relatives you rarely see but can still count on, people you’ve worked with in previous jobs, vendors, etc. Try to stick with people who know your talents, believe in your abilities and genuinely like what you do.

For the furthest circle, think about people you haven’t spoken with in a long time, but who would still value having you as an acquaintance. You might have to go back a ways in your memory for this one! Think of teachers you used to have, people you did business with in the past (but no longer regularly talk to), college friends, coaches, etc. Anyone who might really like to see you do well in your business, even if they haven’t been on your radar lately. Check old yearbooks, holiday card lists and alumni directories for these names. In this circle, also include any angel investors you might have crossed paths with in the past – they might not know you as well as the others, but they make a habit of helping small businesses succeed, so they’re good contacts to have.

2. Narrow the list – Now that you have a huge list of people you know, you need to narrow down the ones with real potential as investors. Take these four criteria:

  • Business Experience – People who have been entrepreneurs themselves are often more likely to invest in others. And those who are willing to give you money might take their role very seriously and want to know as much as possible about the business at hand.
  • Ability to Afford an Investment – You don’t have to know exactly how much money someone makes; you can look at their lifestyle, their career choice, whether they invest in other things, etc. to guess at their wealth. Ask yourself whether each person on your list could afford to lose the investment.
  • Trust in You – These are people who know your character and/or abilities (family, friends and previous coworkers might fit this).
  • Lack of Emotional Baggage – Avoid people that make you at all nervous about being in a financial relationship with them. Also avoid anyone with whom you’ve had a falling-out or who is close to someone with whom you’ve had a falling out. If asking someone for money will create major tension (for example, if asking your parents means that holidays will be awkward for years), don’t do it. Relationship issues are a huge red flag when it comes to business investing, so never ignore them. You don’t want to destroy valuable relationships in your life on the off chance your business goes under.

Apply these four criteria to the names on your list. Circle any names that fit at least two of these criteria. Give extra weight to the emotional baggage bullet point; an otherwise great choice for an investor should be removed from the list if you have personal issues or tension with them. It’s just not worth the grief.

3. Create your “best bets” list – The circled names on your list are the best bets for your investment pitch. Spend some time researching each potential investor so that you can tailor your pitch to fit the relationship you have with that person. Then schedule some time to sit down and talk with each of them, one on one, about your needs as an entrepreneur and what opportunities you’re presenting to them as investors. Be accommodating to their schedules, of course; never inconvenience people whom you’re inviting to invest in you. And in the end, don’t be offended if they say no… It should not reflect on your personal relationship with these people if they opt not to put money into your business. What you’re asking of them is something of a leap of faith, and besides, it might not take more than a few people to jump on board to get you the capital you need to make your business succeed.