Funding is a major priority for most startups. If you have enough funds to kick-start your business, then you can get to market quicker and scale. But if not, then you need to find someone who is willing to invest in your business.
Finding the right investor is about finding someone you can trust with your vision (and someone who can trust you with their capital). But the role of an investor is not limited to funding alone.
A good investor offers smart money — intangibles that go far beyond a signed check. Apart from money, a wise entrepreneur looks for the knowledge, experience and connections (i.e. smart money) that an investor can bring to the table.
Startup financing options
Before you start your hunt for investors take a look at three primary options available.
Private Equity (PE)
Private equity refers to the investments that are made by the privately-owned institutions. These type of investments can be made to fund a project, purchase an organization or to make a private investment.
Venture Capital (VC)
Venture capital is for startups that can illustrate long-term growth potential; and it’s not right for everyone. VCs look for the concrete evidence and traction before making an investment. So, before approaching a VC, you need to construct an empirical and well-crafted proposal.
Angel investors are relatively more lenient than the venture capitalists. They are the people who have a lot of personal wealth and want to invest in startups that suit their interests. Such investors offer many of the same benefits as VCs, but in smaller scale. Many founders often go for angel investors at the early-stage and then seek out venture capital if it is suitable for their business.
What to look for in an ideal investor
Before searching for an investor, identify strategic requirements apart from the funding. An investor is not only the source of money but he/she can help you with matters that are beyond your core competencies.
An experienced and knowledgeable investor can advise you on issues outside of your scope. To know what sort of investor will suit you better, consider the following:
How much involvement do you want from your investors?
In which areas, will you need their advice?
What are their recent investments?
What are their expectations of you and the opportunities they offer?
What is their area of focus?
Which development stage do they invest in heavily?
What is their reputation?
Crafting the perfect investment pitch
Investors look for clear-sighted goals and financial stability before making investments. You need to present a compelling elevator pitch, and detailed information of your business plan in the form of a pitch deck.
Make good use of your presentation skills,.
Defines goals, your business model, a description of your start and its scope in the market. Also, cover the financial planning including the amount of money needed and how you aim to repay it.
Entrepreneur and angel investor Dave McClure notes: “If you’re trying to pitch people for money, have some frame of reference for how much money you’re asking for and how you would spend it.”
Discuss how your company will earn a profit (i.e. revenue model) and how the investor(s) will benefit.
How to connect with startup investors
Knowing all about a suitable investor will lead to nothing until you get a perfect platform to connect with the one. Don’t waste your time pitching ideas to to the wrong people.
Seek out investors who are interested in your plan and your vision as a founder. Nowadays, organisations like Angela Capital Association (ACA) and AngelList are democratizing the investment process by helping connect entrepreneurs with accredited investors.
Apart from this, contacting professional associations in your industry can also help with networking and building the right connections.
Remember that an investor is not a bank, but is a well-connected strategic partner. Try to find an investor who can also act as a mentor and help your startup thrive.
This article has been edited and condensed.
John Noles is a freelance writer who has written many blogs for the entrepreneurship sites. At present, he is an Assignment help provider with Instant Assignment Help, an Australian Homework help service provider. Connect with https://twitter.com/iah_assignment on Twitter.