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You spent many hours bootstrapping your company from scratch. Finding investors is now necessary to launch it.
Thankfully, you don’t have to rely solely on a bank loan these days. You can locate the perfect investors to support the growth of your company whether you’re funding a side business or the next major startup.
Here, we’ll go through where to look for investors as well as six ways to get your company “investor ready.”
Where to Find Investors for Small Businesses and Startups?
Since no two investors are the same, you should conduct your own research before accepting any offers. Investigate each sort of investor and what they are offering in exchange for their capital to identify the one that fits best.
It takes 2-3 years on average for startups to make a profit.
There are the following categories of investors:
1. Angel Investors
High-net-worth individuals who invest in angels support and expand small firms using their own money and resources. Due to their high demand, they might be selective about where they invest, typically giving established companies priority over newcomers.
Angel investors expect a portion of your firm in return for their investment. Having said that, it’s critical to consider how much equity you’re willing to give up. If you provide too much, you run the risk of losing control of your company.
2. Family and close friends
There are two options when it comes to borrowing money from relatives and friends. The initial step is to request a loan. Since you pay it back over time, with or without interest, this may be the choice that is easiest for all sides.
The second choice is to work with an investment fund, where they acquire a stake in your business and share the associated risks and potential rewards with you.
When pitching to relatives and friends, it can be tempting to be casual, but this is not something we advise. Here, transparency is crucial. Tell them when they can anticipate receiving their money back and make sure they understand the risks to prevent strained future connections.
3. Business Investors
Small firms are funded by venture capitalists (VCs) using their own funds. Although they can assist startups, they favour businesses that have a strong foundation.
There are many conditions that venture capitalists might place on investing. One venture capitalist, for instance, might demand a board seat, while another might demand interest. Like angel investors, VCs will hold stock in your company and take an active role in its management.
A venture capital firm, which is a collection of individual investors that invest in companies with strong growth potential, offers an additional choice. These companies have more uniform rules and compensation targets. They’re less concerned with ownership or equity, but they’ll almost certainly charge interest on whatever money they borrow.
Small businesses and startups can raise capital through crowdfunding in exchange for shares, incentives, debt, or nothing at all.
Although it can be a quick and simple way to generate money, you need be aware of which kind is appropriate for your company. The most typical varieties are listed below:
The most traditional kind of funding on this list is equity crowdsourcing. You give away a portion of your company to an investor or group of investors, and they help you raise money to expand it.
Donation-based funding may be suitable for you if you are a nonprofit organisation or small local business. You just need to start a campaign to solicit money for your company. There is no need to reimburse the donation of funds.
Funders of rewards crowdfunding, made famous by websites like Kickstarter, are provided with goods, services, or other prizes in exchange for making a predetermined donation.
Debt crowdfunding: Using this method, you borrow money from other people rather than a bank. Loans are sometimes organised in a manner akin to that of a conventional company loan, and you borrow money at a predetermined annual percentage rate.
Remember that while crowdsourcing can give you quick access to funds, it also necessitates a robust marketing plan, openness, and perhaps giving up some equity in the company.
5. Conventional Business Loan
You can obtain funds from a financial institution by applying for a business loan. It typically comes with a predetermined interest rate and repayment schedule.
There’s a reason why it’s so well-liked: practically any type of business can qualify for one. Unlike other sorts of investors, you can launch your business without giving up equity or other ownership interests.
You’ll need to provide evidence of your income or a history of good credit to be eligible. This choice is not entirely risk-free, of course. You will also have to put something on the line as collateral when you apply for a loan. Something pledged as collateral for repayment is referred to as collateral, such as a mortgage or savings account.
This can be a relatively secure and reliable method of funding your small enterprises if you are confident in the loan’s interest rate and payback schedule.
Also check the list of Web Development Companies For Startups.
Ways to Drive Investors For Your Startup
Consider that you know the names of a few investors to whom you wish to make a pitch. What’s the most effective way to talk to them? Take into account the following tactics to help tip the scales in your favour:
1. Create a strong business plan.
This is the first stage if your goal is to draw investors.
In general, investors are selective about where they put their money. By creating a business plan that is both reliable and trustworthy, you may shift the scales in your favour.
It should describe your business plan, your financial objectives, and your position within the organisation. You can use this data to present the current state and future prospects of your company.
2. Understand numbers.
Knowing your numbers is one of the most crucial components of becoming “investment ready.” This entails detailing your revenue model, providing market research-based profit projections, and outlining how your company will use its investment budget.
More significantly, you must comprehend how those figures will benefit your company. Even while it’s simple to put a figure on paper, it’s more crucial to comprehend (and convey) why you need capital, where it’s going, and whether your valuation makes sense.
3. Set foot on the proper figure.
Investors want to know where their money is going, which is not at all shocking. If you request too much money or too little to make a difference, this can be viewed as a warning sign.
You could require advice from a third party, such as a financial counsellor or consultant, if you’re unsure of the appropriate amount to request. Alternatively, if you’re a tenacious new startup, you might want to think about creating an advisory board.
4. Adopt an investor’s mindset.
Make a list of the possible questions or objections that investors might have in order to feel more assured as you approach them. What inquiries would you make if the situation were reversed? Which criticisms would you like to see addressed?
By doing this, you may create high-caliber responses in advance, and potential investors might be impressed by your preparation.
5. Get your elevator pitch down.
To perfect the elevator pitch, you must be able to briefly and succinctly explain the problem your firm solves, how it does so, and why. Investors won’t know what problem your firm answers if you are unable to achieve this or are unsure about it yourself.
Nothing more, nothing less, a good elevator pitch will pique someone’s curiosity. Once you have someone’s interest, you may go into greater detail about your business, the market, and how funding would advance it.
6. Be prepared to leave.
This advice can seem paradoxical, but in the long term, it can help you avoid a lot of stress. In order to match with an investor, finding a solid fit is crucial.
Do you share the same objectives and motivations with them in addition to the funds they contribute? Do they comprehend the math? Will they serve as a resource or mentor as you grow your business?
If you feel that an investor is giving you a terrible deal or exploiting your company, be prepared to walk away. Yes, you need financing, but choosing the incorrect investor could harm your company.
Consider using a CRM to manage these connections when you begin contacting investors. For instance, Visible enables you to build a customised investor database where you may foster connections and communicate target updates.
What paperwork is required for investment from investors?
Investors may think your company or product is fantastic, but that doesn’t matter if they can’t determine whether their investment will be profitable.
Investors have more faith and can see your company’s health clearly when your finances are in order. You should be prepared with a number of financial statements, including:
- income declarations
- sheets of accounts
- expense statements
Projections based on the money you will receive from the investment over the long terrm success indicators.
Of course, if your business is still in its infancy, you might not have access to all of these statements. That’s acceptable as long as you have enough data to demonstrate the current state of your business and a financial forecast for the foreseeable future.
Your small firm can achieve success with the appropriate investor, but the journey there can be challenging and protracted. But if you take the correct strategy, you can stand out from the crowd and make the appropriate connections.