Private Investors: The Complete Guide for Startups and Small Businesses

Key Takeaways:

• Private investors are relationship-driven: Founders typically find them through networks, banks, organizations, or high-net-worth individuals, and must prepare materials win them (e.g.,pitch deck, financials, and a clear business story).
• Funding decisions hinge on business sophistication: Bootstrap before product-market fit; raise capital once revenue and a scaling path are clear. Early investors usually take about 10–25% equity.
• Valuation and investor readiness are critical: Founders must understand valuation methods, prepare financial reports, and demonstrate adaptability, execution ability, and a sustainable business model.
• The right investor adds more than money: Strong investors provide strategic guidance, networks, mentorship, and credibility, while good founders maintain operational discipline and stay close to customers.
• Private markets and investing are high-risk, long-term plays: Success depends on due diligence and patience, whether you’re raising capital or investing yourself.
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This article is based on an episode of the Cash Flow & Tell, Private Investors 101: How to Know You’re Ready (and Get Them to Say Yes), featuring angel investor and entrepreneur Janice Liu, co-founder of Mantis with supplemental information added. Private capital markets have grown into a $16 trillion industry, driven by institutional investors but increasingly accessed by individual investors via wealth managers, digital platforms, and DC pension plans. (Citi Institute)

It walks through how to find private investors, determine how much equity to give up, and calculate company valuation. It then covers when to raise funding versus bootstrap, what investors evaluate, and the materials founders must prepare. Next, it explores how to tell a compelling company story, how much capital companies can raise, and how investor control works. The article also explains what makes a good investor, how private investing functions (including risks, returns, and funding rounds), and closes with guidance on evaluating startups, starting as an investor, and understanding the differences between private investors, angel investors, and venture capital.

How can I find a private investor for my business?

Private investors are most often found through relationships and industry networks rather than through public listings. You can:

• Network your way to experienced angel investors or recent retirees ready to try investing
• Build a relationship with your bank, as they often have connections to investors
• Find organizations that invest in small businesses
• Non-traditional lenders (like Kiva)
• Network your way to high net-worth individuals

Many founders overlook informal investors within their own network: trusted individuals who may be open to lending or investing capital for equity. 55% of angel investors were previously founders or CEOs of their own startups, and 72.8% hold education beyond a bachelor’s degree. (Angel Capital Association)

How much equity should I give up to an investor?

Give up 10% to 25% equity in a seed or early-stage funding round. Early investors typically receive 15% to 20% for capital ranging from $100,000 to $2 million, depending on valuation, traction, revenue, and growth rate. Maintain at least 50% ownership after multiple rounds to retain control and make future raises easier.

How to calculate company valuation

The biggest negotiation is your valuation. Calculate it with the following equation:

Pre-money valuation = Investment amount ÷ Equity percentage

Example: Angel investor writes a check for $200K. You agree on a $2M pre-money valuation.

• Post-money valuation = $2M + $200K = $2.2M
• Equity given up = $200K ÷ $2.2M = 9%

Comparison: Company Valuation Methods

When should I raise money vs. bootstrap?

“If you’ve already seen product market fit and you already have revenue it may not be profitable but you already see those indicators from market perspective, it is actually worth it for you to go and have a conversation with VCs at that point. It is worth it for you to actually go and talk to your banks and explain your story against the bank.” – Janice Liu, angel investor and entrepreneur

What do investors look for before investing?

Investors evaluate the founder, team, and business on:

• Adaptability
• Problem focus
• Ability to execute
• Willingness to pivot
• Sustainability of the business
• An AI maturity assessment, including their tech stack

Do I need a business plan or pitch deck to get a private investor?

Yes. Use a pitch deck to get a private investor. Investors expect a 10- to 15-slide pitch deck that outlines the problem, solution, market size, traction, revenue model, and financial projections. Keep a detailed 15- to 30-page business plan for due diligence after initial interest.

Materials to prepare to get a private investor

• Business plan and pitch deck: Explain the why this business needs to exist, how it works, and how it will make money.
• Financial Projections: For early investments, it is important to understand the founders’ projections and have a sense of when the business will reach “breakeven or that profitability point.
• A Solid Concept and Thesis: Investors look for a well-defined concept and a defensible thesis.
• Disciplined Storytelling: Tell your story regularly. Practice the story hundreds of times to ensure it “lands” and stays simple enough for anyone to understand.
• Operational Hygiene: Even without formal investors, maintain the habit of monthly reporting, which includes tracking what has been accomplished, the burn rate, and how much cash is in the bank.

How do I tell my company’s story to investors?

• Practice Rigor and Iteration: Successful storytelling is not a one-time event but a “muscle” developed through the discipline and rigor of telling it regularly. Test your story hundreds of times to refine where you start and how it lands.
• Ensure Simplicity: Your story should be grounded in reality rather than glorification and embellishment. You should be able to explain what your company does simply enough for anyone—even a stranger or a grandparent—to understand.
• Identify an Ownable Problem: Focus on a specific, manageable “slice” of a market rather than trying to solve a problem that is too large or conceptual. Investors want to see that you can solve a tiny problem and embed yourself in a value chain before expanding.
• Stay Close to the Customer: A compelling story must be grounded in real-time interactions with users. Founders who lose direct contact with customers lose grasp on reality quickly and cannot tell an authentic story of what they are building.

How much funding can I realistically raise?

Raise 6 to 18 months of operating capital based on your stage and traction:

• Pre-revenue startups typically raise $100,000 to $500,000.
• Early-revenue startups often raise $500,000 to $3 million.
• Companies with $1 million or more in annual revenue can raise $2 million to $10 million.

Will investors take control of my company?

Investors take control of your company only if they acquire more than 50% ownership or secure controlling voting rights through preferred shares or board agreements. Most early-stage investors purchase 10% to 30% equity per funding round. Control depends on equity percentage, voting structure, and shareholder agreements.

Investor Control: Operational Realities to Consider

• Board of Directors: The specific role an investor might take on the Board or in Management Teams.
• Your Term Sheet: Ensure you’re familiar with the specifics, such as voting rights, classes of stock, and liquidation preferences.
• Clawback Provisions: A common legal entity in investment contracts that protect investors if performance targets aren’t met. Double check whether these are present in a contract or term sheet.

What makes a ‘good’ investor beyond just providing capital?

A good investor:

• Contributes strategic guidance
• Lends credibility
• Provides access to their network access
• Founder mentorship
• Connects you to more funding:
• • A private investor might help you achieve bolt-on acquisitions, where a company buys smaller competitors to scale faster

Janice describes how she helped diversify a startup’s investor base to include 30% women and 20% BIPOC investors, demonstrating that the best investors also promote inclusivity and governance improvements. 

How do I value my business before approaching investors?

Value your business before approaching investors by applying three primary methods: revenue multiple, EBITDA multiple, and discounted cash flow (DCF). Early-stage startups often trade at 3x to 8x annual revenue, while profitable small businesses trade at 4x to 6x EBITDA. Adjust valuation based on growth rate, industry benchmarks, recurring revenue, and risk profile.

What financial reports do I need to share with investors?

Share three core financial reports with investors: income statement, balance sheet, and cash flow statement for the past 2 to 3 fiscal years. Include year-to-date financials, a 12 to 24-month financial projection, and a capitalization table. Investors use these reports to assess profitability, liquidity, debt levels, and future growth potential.

For ongoing reporting, also include:

• EBITDA: Private equity investors, in particular, use Earnings Before Interest, Taxes, Depreciation, and Amortization as a primary health metric.
• ARR (Annual Recurring Revenue): For any tech or SaaS-based SMB, this is the “North Star” metric for private investors.
• IRR (Internal Rate of Return): Investors calculate their success based on IRR rather than just simple multiples.

How do I manage uncertainty or pivot my business model?

• Avoid outcome fixation: Getting too attached to a specific result can make it difficult to pivot because you become focused on the fact that the business might not look how you wanted it to.
• Prioritize adaptability: Investors now look for teams that can adjust strategy and quickly follow it based on changing circumstances and context.
• Value perseverance: Pivoting often requires perseverance through missed milestones. Some companies takeyears after a missed milestone to find the right trajectory and funding.
• Balance belief with feedback: You must believe in the concept enough to persevere, but remain flexible enough to adjust as the market shows signs back to the product.
• Remain close to the customer: To pivot effectively, founders must engage with customers directly rather than relying solely on sales teams. Without this, you lose your “lens as a founder” and risk becoming obsessed with KPIs while the business is still being sculpted.
• Focus on sustainable foundations: Focus on building a sustainable and profitable business from the start, rather than just chasing “hockey stick” growth.
• Solve tiny problems first: Instead of trying to solve a massive, complex problem that requires excessive capital, focus on a tiny problem that allows you to embed your business into a value chain.

How do I know if entrepreneurship or investing is right for me?

Entrepreneurship and investing are both high-risk, high-reward pursuits. Janice describes them as “lifestyle choices” requiring tolerance for uncertainty and long-term thinking. Entrepreneurs trade stability for autonomy, while private investors trade liquidity for potential upside. 

“Never invest if you can’t sleep at night if the money goes away.” -Janice Liu, angel investor and entrepreneur

What is a private investor?

A private investor is an individual or private entity that invests personal capital into businesses, startups, real estate, or financial markets to earn a return. Private investors use their own funds rather than institutional money. They typically seek equity ownership, dividends, interest income, or capital gains over a 3–10 year investment period.

Can anyone be a private investor?

Anyone with available capital can be a private investor by investing personal funds into businesses, real estate, or financial markets. No formal license is required to invest in public stocks. However, private equity and hedge fund investments often require accredited investor status, which in the U.S. means earning $200,000+ annually ($300,000 with a spouse) or holding $1 million+ in net worth excluding a primary residence.

How does a private investor make money?

Private investors make money when the company they invest in exits. This happens through an acquisition, IPO, or merger.

Expert insight: Angel investor and entrepreneur Janice notes that in her portfolio, roughly half of the companies they invested in had reached Series A or B; others failed entirely. Research supports that successful angel portfolios may yield 2.6x the investment over ~3.5 years (i.e., ~27% IRR) in one large study (Source).

What is the difference between a private investment firm and a private equity firm?

The main difference between a private investment firm and a private equity firm is that private investment firms manage a range of asset classes including real estate, hedge funds, and equities, while private equity firms specifically invest in private companies, often acquiring controlling stakes to restructure and grow them.

What are the different funding rounds?

• Pre-Seed: The earliest stage, usually friends, family, or the founders themselves. Amounts range from $50K–$500K. Used to build an MVP or prove the concept.
• Seed: The first “real” round. Angel investors, seed funds, or early-stage VCs. Typically $500K–$3M. Goal is to find product-market fit.
• Series A: First institutional VC round. Usually $3M–$15M. You’re expected to have traction and a repeatable business model. This is where many startups fail to raise (“Series A crunch”).
• Series B: Scaling what’s working and established. Typically $15M–$50M. Investors want to see strong growth metrics.
• Series C and beyond: Expansion stage: new markets, acquisitions, preparing for an exit. Rounds can be $50M–$100M+. Often involves growth equity firms, hedge funds, or corporate investors.
• Late Stage / Pre-IPO: Large rounds to prepare for going public. Investors may include private equity and sovereign wealth funds.

The end goal is an exit, either via an IPO (a.k.a., going public) or an acquisition.

What are secondary markets in private investing?

Secondary markets in private investing are platforms or transactions where investors buy and sell existing ownership stakes in private companies. These shares were previously issued in primary funding rounds. Secondary transactions provide liquidity before an IPO or acquisition. Deals typically occur through private equity firms, broker-dealers, or specialized secondary marketplaces and often involve negotiated pricing and transfer restrictions.

What is a Confidential Information Memorandum?

A Confidential Information Memorandum (CIM) is a detailed document used in mergers and acquisitions to present a company to qualified buyers. Investment bankers create a CIM to disclose financial data, operations, market position, and growth projections. Buyers review the CIM after signing a non-disclosure agreement (NDA).

What does success look like in private investing?

Success is not defined by individual wins but by portfolio performance and diversification. Industry-wide, one-quarter of exits in 2024 returned less than 1x—or lost money—while the median return remained 1.3x. (Source). Therefore, success depends on disciplined portfolio building, due diligence, and patience over 5–10 years.

Janice highlights that roughly half of her investments succeeded, while several failed completely. 

One underrated benefit to private investing is Qualified Small Business Stock, a massive tax incentive.

How risky is private investing?

Investing in early-stage private companies is high risk. The early‐stage private investment (angel) asset class has high dispersion in outcomes; a small number of “home runs” drive most returns (Source), while many investments fail. This binary outcome, either scaling or collapsing, is typical of the private investment landscape. Diversification is key.

Further, private investors and angel investors face far greater uncertainty than those in public companies because private markets are:

• Iliquid
• Valuation data isn’t transparent
• Outcomes depend heavily on founder execution.

However, U.S. private equity exit volume increased 32% from 2023 to $365 billion in 2024, and the 10 largest U.S. private equity deals in 2024 summed to $108 billion, accounting for 14% of investment volume. (American Investment Council)

What should I look for in a startup before investing?

Look for these four charactertistics:

• Trust in the founder
• The team’s ability to pivot and execute fast
• A focused problem
• A clear path to breakeven in the business plan

Investors should avoid startups solving problems that are too broad or easily replicated. 

The best founders demonstrate discipline, adaptability, and awareness of market fit. Industry research confirms that due diligence time correlates directly with returns; spending at least 20 hours on diligence per deal see an average return of 5.9X their capital. (Source). 

How do I start investing privately or as an angel?

Start small and invest in industry sectors you understand. Early investors should join angel groups, take due diligence training, and seek mentors. Also consider areas where you add value (e.g., advising) beyond just cash, since that can improve outcomes.

ACA’s latest data shows that hybrid angel groups—those combining individual checks with a pooled fund—tend to deploy more capital and attract more members, suggesting stronger deal flow, more diversification, and better structural conditions for returns. (Source).

Only 18.5% of U.S. households qualify as ‘accredited investors’ under the SEC‘s current net worth or income thresholds.

What’s the difference between private investors, angel investors, and venture capital?

The main difference between private investors, angel investors, and venture capital is the source of capital and investment structure.

• Private investors use personal funds across various asset classes.
• Angel investors use personal capital to fund early-stage startups, typically investing $25,000 to $500,000 per deal.
• Venture capital firms manage pooled institutional funds and invest $1 million to $20 million+ in high-growth startups in exchange for equity and board oversight.