The early stage of a new business venture can be an exciting and potentially stressful time. One critical need is often funding for things like production, marketing, and distribution.

Our Truist Business Lifecycle Advisory approach is built on understanding the needs of business owners at every stage—from early to growth to established to transition. We know that while financing with a commercial card, line of credit, or business loan is one funding solution, there may also be another option to consider—equity financing.

With one type of equity financing, an angel investor, a venture capital (VC) investor, or a VC group purchases a portion of your company, understanding that they’ll have a stake in your future profits and decisions. Like debt financing, equity financing can have repercussions throughout the rest of your business lifecycle, so it’s important to know what you’re getting into.

Here, we share insights to help you decide if equity financing is right for you, as well as tips for vetting and choosing the investors who will be the best fit for your business. See how making smart and informed moves now can affect both your present and future success. 

Due diligence shouldn’t be a one-way street.

Just as you wouldn’t begin cold-calling sales prospects without first conducting in-depth market research, you shouldn’t begin your search for an investor without some initial legwork. Why? “Investors can bring more to your company than cash,” explains David Weaver, chief commercial community banking officer at Truist. “Or they should, especially if you’re offering them equity.”

For example, an investor or VC group may offer industry expertise, connections, or insights into areas on your to-do list (such as digital transformation, people management, or divestitures). Considering where your strengths and weaknesses dovetail can help you develop a short list of investors to consider more intensively.

“I tell clients to find the right haystack and then start looking for their potential investors,” says Weaver.

Once you’ve made your list, remember that due diligence goes both ways. Your potential investors will want to know everything from your enterprise’s competitive weaknesses to your profit and loss projections. But it’s critically important to conduct research on your prospective investors, too, before entering into any agreement. 

“You can’t ‘divorce’ an investor once they’ve bought into your company. It’s far better to thoroughly vet business investors upfront and choose someone you feel you can go the distance with.”—David Weaver, Chief Commercial Community Banking Officer, Truist

“You can’t ‘divorce’ an investor once they’ve bought into your company,” says Weaver. “At that point, financially, legally, and emotionally, they are part of your business. Yes, down the road, a restructuring or a buyout might allow you to change backers, but you can’t count on that. It’s far better to thoroughly vet business investors upfront and choose someone you feel you can go the distance with.”

Questions to think about:

  • Has the investor worked with other businesses of your size and scale?
  • Are they familiar with the technology, regulatory environment, or competitive pressures of your business?
  • Where are they geographically? Have you looked at investors from other regions of the United States? Other countries?
  • Are you willing to give up some control?
  • If so, what are potential deal breakers for you, for example, adding a product that goes against your personal values?

Your Truist relationship manager can help you determine what matters most, particularly if you’re not able to talk to your team about investment options.

> Read about how Truist helped find and vet investors for hormone replacement therapy provider Biote, which went public in 2023.

Finding investors takes time.

Seeking and screening investors for your business can be as intensive as recruiting for a key role. VC firms spend 20 hours or more1 on due diligence for each potential investment, so you should expect to do the same. But be careful to balance this with keeping your business going strong in other areas, including customer experience, employee engagement, and technological innovation.

“It can be tempting for founders to shift their focus from running their business to seeking money and telling their story,” says Jason Cagle, head of industry specialization and advisory for Truist Commercial. “While it’s important to be engaged in the process, this isn’t the time to ease up on operations and management. That’s why it’s so important to seek guidance.”

And don’t forget to make room in your calendar and budget for things like traveling to meetings, creating strong pitch materials, and scheduling assessments and legal work.

Questions to think about:

  • How will the time investment you’ll need to devote to vetting potential investors affect your daily operations?
  • Are there tasks you can delegate to others on your team to free you up for the vetting process?

Keep in mind that you may lose some revenue if your search requires slowing down other parts of your business. Your Truist relationship manager can provide advisory support as well as financial solutions to balance these interim moves. 

Start looking for investors before you need them. 

Venture capitalists and angel investors can often wait years to make a move. That’s a painful truth when you’re looking to grow right now.

What’s a founder to do? Make yourself aware of investors in your area and industry now—and be on the lookout for potential investors all the time.

Network with them in groups. Go to lunch one-on-one. Talk to other founders they’ve backed. See what they’re up to on LinkedIn. Meet with them at industry conferences. Get to know what they value and how much risk they’re willing to take on. Look into how they deal with vendors, peers, and employees by talking to other firms they’ve invested in and reading online reviews, social media, and media coverage.

Questions to think about:

  • What does your long-term growth plan look like?
  • Who else is helping you in your search?

Let your Truist relationship manager know about your goals so they can help you build connections. They can also serve as a well-informed sounding board early on when you’re not ready to share your long-term plans with your team, your friends, your family, or others who might not be objective advisors.

“Clients often engage our Truist Securities teams with questions about investor due diligence,” says Cagle. “And I’m glad they do. Even if they’re not sure that seeking outside investors is something they’ll ultimately choose, we can make it part of our ongoing conversation across the business lifecycle so they can make the best choice possible for their enterprise.”

Let us know what you need on your capital formation journey.

Contact your Truist relationship manager to find out how we can find custom solutions to meet your evolving needs.

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*This form is for prospects. Truist clients should contact their relationship manager with inquiries related to commercial products and services.

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