Social Media = An Easy Way To Get Investors?

While having drinks with some fellow business owners recently, the subject turned to seeking investors. This group of friends are unique in that A) none of them went to business school, and B) they all bootstrapped their companies to profitability. Which means, none of them have any knowledge or experience with seeking investors (myself included).

Could social media offer an easy solution?

One of my colleagues shared he had heard of a company (similar to his own), getting funded after a private equity firm had followed the company on social media and reached out to the founder via LinkedIn to discuss the business. Sounds like the dream scenario for every company looking to get funded. But, is that common?

I decided to find out.

I reached out to several private equity professionals to find out how they are using social media these days. Here's what I learned:

#1 - "Brand or BE branded," is even more true when seeking the attention of business investors.

Chris Reap, Partner at True North Companies, a Scottsdale, AZ based private equity investment firm, says online research is a given in today's competitive hunt for the best investments. Reap says, in spite of the large amounts of money out there available for investment, deal flow, a/k/a the amount of quality opportunities available for investment, is tight. Reap explains, "Owners can often be focused on finding the highest bidder, but fail to take into account if the investor is the right match to help them take their business to the next level to create larger downstream value beyond the highest current bid." As a result, Reap is using social media to seek opportunities in niche areas where his company's extensive experience and deep network of talent can ensure investment success.

Takeaway: Companies looking for funding need to get their social media presence properly optimized to make it easier for the right investors to find them. Specifically, select and promote keywords on social profiles that showcase the company's industry, with specific emphasis on any niches or specialties investors might be searching on in order to rank higher and show up in more search results.

#2 - Social media can open doors, but it won't speed up the process.

David Nevas, Principal at Edison Partners, a New Jersey based private equity investment firm, says while social media is great at helping investment firms get to know a company and the founding team better, it doesn't make the process of securing the investment go faster. Regardless of whether it's a $4M investment or a $10M one, proper due diligence on any size deal takes time. Nevas says, "At our firm, the typical length of a relationship, from the first meeting to writing a check, averages two years. There's a lot of deep research that goes into each deal. We need to understand the business and executive team so we can be sure our investment is a calculated risk with more upside than down."

Takeaway: If your company need funds fast, social media isn't the answer. You'll need to knock on some doors and try to get alternative financing to hold the company over (i.e. bank loans, angel investors, etc.), while you start to attract and engage investors in the due diligence process.

#3 - Leveraging online networking groups is a growing trend.

Florin Butunoi, Vice President of MTN Capital Partners, a NYC based private equity investment firm, says online groups of like-minded professionals can help connect companies with investors more effectively. Butunoi's firm even started their own invitation-only group on LinkedIn, designed to help the executives looking for their next C-suite opportunity with the connection process. "Our community is filled with executives with proven track records who are looking to be a part of an investment opportunity where they could also carve out a key position for themselves within the target company. They have become an integral part of our deal sourcing process that makes finding the right opportunities more efficient."

Takeaway: Companies seeking funding should find online networking groups and be strategic in their interactions with members to learn what their professional goals are. Networking today is about super-connecting. [Here's a LinkedIn article on how to become a super-connector.] If you can help two people come together, you'll then have two people in your network who want to repay the favor.

Social media isn't an easy answer, but it's definitely worth doing.

Any company looking for investors today can't ignore the need to leverage social media in their efforts. It's not an easy way to get funding, but it seems you won't get a shot at funding at all if you aren't managing your presence online properly.

P.S. - My advice back to the private equity investment community about social media.

Through my research, I learned the investment community is really frustrated by the level of competition for deals. It's making the job of finding worthy investments more time-consuming and costly. I think we are going to start to see the savvy investment firms do some investing of their own - in content marketing to distribute on social media as a way to improve their sourcing process. Especially, the firms that aren't looking to compete on price. They'll need to really prove through storytelling and sound advice that they're the ones companies should partner with.

P.S. - Have we met yet? First, thanks for reading my article! I have the privilege of being the CEO of CareerHMO.com. Besides writing for LinkedIn, I also write column for INC Magazine is called "Workplace Referee." I invite you to CLICK BELOW on some of my most popular articles:

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