My blueprint for attracting private investors

I’ve talked a lot in this newsletter about how to buy businesses for little to no money down.

Broadly speaking, the main strategy that I (and my students inside Acquisition Ace) use goes like this:

• Get an SBA loan to cover up to 90% of the purchase price (with at least 10% required up front as a down payment)

• Pay off the down payment through creative financing — often by bringing a private investor on board

The first point I’ve covered in great detail over the last few months.

But as for the second, I haven’t shown you how to actually find and attract an investor yet.

So let’s remedy that.

I want to make one thing clear up front:

Great deals get great investors.

Finding an investor for a bad or mediocre deal is super tough, even with a great network. So whatever you’re bringing to the table has to be a win-win for both of you.

With that said, let’s dig into the main steps:

1. Come up with a business plan

It needs to be in as much detail as possible, so you can explain to an investor exactly:

• What business you’re buying

• How you’ll run it

• When you’ll pay off the debt

• The systems you’ll put into place to improve revenue

And most importantly... what’s in it for them?

2. Build your team

Serious investors will want to see that you have a solid team in place.

Use LinkedIn, Twitter, or your network to hire:

• An accountant

• An industry professional (experienced in the type of business you’re buying) who can help you do market research and valuations

Tell them your vision and strategy, and ask them to help with due diligence & growth.

Offer each of them 2.5% equity in exchange.

3. Get a deal under contract

Once you do, you can decide how much equity to offer investors.

Let’s say the business is worth $2M, and you need a $200k down payment on the SBA loan.

You can offer 15% equity in exchange for the investor paying off that $200k.

4. Attract your investor

Here’s where the rubber meets the road. If you’ve nailed the above steps, you’ll be in good shape.

Investors are desperate for well-crafted opportunities like this.

Start reaching out to people on LinkedIn, Twitter, or Facebook groups.

And be aware: your ideal investor could be anyone you already know — friends, family, coworkers, or other people in your network.

5. Clearly explain the value proposition to your investor

For example:

They put in $200k for 15% equity.

After the loan costs, if the cash flow of the business is $600k per year, then they’ll be making $90k per year for 0 hours of work.

That’s a smooth 45% annual cash-on-cash return. Not too shabby!

But Ben, why wouldn’t the investor do the deal themselves?

Because finding a deal, executing it, and then running the business takes a ton of work.

Plenty of people would rather collect a passive return on their investment without having to do the grunt labor.

That said, some investors might want to actively help you with operations and growth. Every deal is different.

If you’re considering buying your first small business, and would like me to send you proprietary deals that match your goals and budget:

Fill out this form here.

Or, if you have a business you’d like to sell and are looking for buyers:

Let me know here.

And stay tuned for Thursday’s issue, where I’ll reveal the biggest factor that separates the winners from quitters in business...

— Ben Kelly