A friend asked me last week if I know an investor interested in the T-shirt business. I don’t know him well, I don’t know his business, but I’d like to help. So it occurs to me that there’s a predictable series of questions to ask to point a plan in the right direction.

1. Is your business plan investor-friendly?

To interest arms-length investors (meaning not friends and family but people who don’t know you and don’t believe in you already), a business plan has to have an experienced management team, a product and market focus that offers real growth potential (like at least 10X, but preferably 50X or 100X growth in three to five years), and a believable exit strategy. These days the only credible exit strategies are about being acquired by a larger company.

2. If no, you have two realistic choices.

If your business plan doesn’t have all of these qualities, stop here. None of the rest of this applies to you, so don’t waste your time. You have two options:

  • Focus on people who know you and believe in you to get friends and family investment
  • Scale down so you can bootstrap.

3. If yes, do your homework; find friendly investors

Never, ever use the shotgun approach–mass mailing, e-mails or postings–to find investors. That’s about as bad as taking out “spouse wanted” ads. Instead, use the internet. Look for the right kind of investors, preferably local, preferably interested in and knowledgeable about your type of business.

Never think of investors as money; they are partners. It’s a relationship like a marriage. An incompatible investor, like an incompatible spouse, is a shortcut to hell. One of the biggest fallacies in startups is the myth that getting the money is the goal–not if you have bad partners.

Refinement: Does your plan have VC potential?

Do you have a strong team, strong product, strong market, clear exit, defensible business and a good use for several million dollars? Do you have a good shot at generating a huge return on several million dollars in three to five years? Like 20 or 30 times the initial investment?

  • If and only if you can answer “yes” to every one of these questions are you looking for professional venture capital.
  • If not, then you’re looking for angel investment.

And either way, whether VC or angels, turn to the web to find investors who are either local, know and like your industry or, better yet, both.

The professional VC firms are relatively easy to find. Do an internet search. You can refine it to add geography (for example, search for “VC Atlanta” or “VC Texas“). You can also find free venture capital directories with searchable entries for geography, industry, deal size or stage preference, starting with the National Venture Capital Association at nvca.org, which has a good directory of other resources.

Another great site for a VC search is thefunded.com, a database of entrepreneur reviews of dealings with venture capitalists and angel investors. Membership is free for entrepreneurs.

(Hint: you probably don’t want to buy lists of venture capitalists, because most of this information is available free. Sometimes a hundred or so bucks can save you time, which might make it worth the expense; but unfortunately there are a lot of sharks in the listings-for-sale market. Be careful.)

Angel investors are harder to find but still findable. Do a web search for local angel groups, talk to your chamber of commerce, ask the nearest Small Business Development Center, ask at local business schools at nearby colleges and universities.

It’s still easier to get an investor’s attention if you first get an introduction from somebody he or she knows, no doubt; but even without that, if you do the research first and find investors with local or industry interest, the odds of getting a hearing increase dramatically.

And for angel investors, there’s also the Harold Lacy strategy of asking everybody you can think of who they know who might be interested. It takes the edge off asking directly for an investment and, if you know enough people, it can actually work.

Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.