So you have a great idea and want to start a business. There’s just one problem: you need funding. Finding investors for your start-up idea is one of the most challenging steps to creating a true life-changing financial endeavor.
It can be frustrating. It is a path filled with self-doubt and critical choices. However, if you know where to look, finding an investor for start-up funding is not as difficult as it first seems.
Today, I am going to share some of the best ways to find an investor for start-up funding with you.
Show Your Plan
I cannot stress this enough: If you cannot present your business idea in a professional and concise manner, you will not find the funding you need. Finding investment for your start-up is all about persuasion. You have to persuade potential investors that your idea is worth backing.
In order to do this, you have to be able to share your strategy and plan. The only way to do this is to spend some time developing a solid business plan for your start-up. Networking and investment opportunities can arise spontaneously. So be prepared with a plan that you can give to investors at short notice.
Your business plan must clearly present who you are, what you do, market research, as well as clearly defining roles for the management structure of your business.
Your plan should also include detailed information about business milestones for your start-up. This should incorporate estimated times for subsequent funding rounds as well as financial projections for where your product/service will go.
Make your financial projections realistic and don’t try to persuade investors that they will instantly see a return on their investment. This is a sure way to telegraph to an investor that you do not understand the challenges of business development.
Offer any potential investors a concise one-page breakdown of what your business is hoping to achieve, the opportunity within the marketplace based on market research, and where you think your business will be in the first 3 to 5 years of trading.
Then, back this up with a more detailed report.
With your business plan in place, you can confidently meet new potential investors knowing that you have the proverbial bait on the hook to reel them in.
Family and Friends
Approach your friends and families first with investment opportunities. This can both be a smart move but also a precarious one for your personal relationships. You must treat people’s money as carefully as your own.
With a solid business plan behind you, you can at least be more confident that you’re not going to waste the financial resources of friends and family. It’s also important to never let someone near to you invest money in your business idea when they cannot afford to lose it.
Every business investment has risk.
But, through good planning and hopefully having a solid product idea, you can reduce this risk as much as possible.
With these warnings in place, sometimes friends and family are willing to pool their money together in order to get your business started. This can be as a loan, a convertible note, or straight equity for cash injection investment.
After the economic crash of 2008, it became perceived wisdom that financial institutions were no longer willing to invest or offer a credit line to start-up businesses.
This is wrong.
Banks and other lending institutions are more willing to invest in new businesses than many would believe.
The best place to start is with your local bank, especially if you already have a relationship with them. Alternatively, if you have an account with another bank or contribute to a credit union, these are also good options.
Essentially, you are applying for a loan. This loan will be based on a combination of your business plan and your credit history.
Some loan applications can be made online. However, meeting with a bank manager, financial adviser, or loan officer in person, will allow you to convey your professionalism more readily.
You may have to try several banks before you can secure a loan.
Present yourself professionally at all times. If you have to take out a personal loan to fund your initial business plans, then that is an option. However, do not put your entire financial life at risk.
Only take loans you can truly afford to pay back. As an entrepreneur, there are risks, but financial care is paramount for your reputation as a businessperson.
For the purposes of this article, I have included several groups under the umbrella term of “professional investors” which are the ones that a good M&A advisor will be pointing you to. These groups include venture capitalists, angel investors, and crowdfunding sources.
Venture capitalists are often represented by a firm. The firm will have a point of contact and a legal team, which will look at your business plan and decide whether the investment funds entrusted to them should be invested in your concept.
Venture firm listings can be found online with a simple Google search.
A little research will identify the venture capital firms best suited to your business idea. Look for firms that tend to invest in similar businesses, niches, and industries, if possible.
Be wary that venture capitalist firms will tend to take a large slice of your company’s stock in return for investment. However, the siad investment is often substantial.
Venture capital firms will look to get as big a return as soon as possible, so they tend to invest in startup concepts with either global potential or a large eventual market reach.
Angel investors are often mistakenly lumped in with venture capitalists. However, there are differences between these two groups.
Angel investors are often individuals. They are much more open to investment negotiation. Venture capitalists are more likely to ask for a straight equity investment, but angel investors will look at other options such as convertible debt.
They are also more likely to invest in something they are interested in and offer their advice. This can be invaluable.
In order to find an angel investor, look first for local options. An investor in your local area may be interested in helping a fellow local get started. You will find angel investor groups both on social media and on websites with their own listings.
The bottom line is network, network, network.
Get involved in online investor communities and attend conferences and other meet-ups, including pitch opportunities, in order to find the right angel investor for your startup.
Finally, more and more startup entrepreneurs are finding investment through crowdfunding. This comes in two forms: Either launching a concept via Kickstarter and similar websites where interested people will invest in the concept, or on websites like CrowdCube, where professional investors and entrepreneurs can easily find each other.
Crowdfunding is a great way to go in the modern era and can provide all the investment you need to get your startup up and running.
Learn More About Startup Funding
I hope this article helped you find the investment opportunities you require. If you are looking for more advice about startup fundraising and making great business deals, check out The DealMaker Podcast, where I interview some of the world’s most successful business people, who share the experiences and techniques which have led them to the top.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and at NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.