When you have a new business idea, one of the things you might wonder is how to find an investor for your startup. Your strategy for securing funding from investors will vary based on the nature of your business and the market you are operating in. Do you know who the potential investors in your industry are and how to attract them? This article will help early-stage entrepreneurs understand and navigate the investment landscape to find investors for their startups.
What are the different types of investors?
There are different types of investors depending on the nature and stage of your business. Investors have different investment requirements and intervene at different stages of your startup's journey. Angel investors are individuals who invest their own money in early stage businesses. They can be friends and family or members of an angel investment network. Angel investors will typically write the first check of your business and sometimes be the first clients of your startup. Super angel investors are successful angels who have a successful track record of investing in startups and who are able to make follow on investments throughout a startup's growth.
Venture capitalists are the next type of investor a startup can raise money from once they have built a product and validated it with early customers. Venture capital firms do not invest their own capital but instead raise money from limited partners to invest in startups. As a result, venture capitalists tend to have an investment thesis and stricter set of rules for investing in startups. Investment firms will also have larger teams to do due diligence on potential investment opportunities.
Later stage startups with revenue in the millions and proven business models can also secure funding from private equity investors. Private equity investors will typically invest just before a business goes public. Finally, not all startups need to secure funding from angel investors or professional investment firms. For example, equity crowdfunding platforms like CrowdCube make it easy to pool investments from private investors into one investment. This can be attractive for startups seeking to build brand awareness with individual investors which can also become clients.
What makes a good investor for your business?
Finding the right investor is key, as they have years of experience that you don’t have and can connect you with the right resources to get your business moving forward. Good investors will help your business grow beyond the capital they provide you. For example, good investors will help you acquire your first customers, find talent and introduce you to future investors. Good investors will also support you and help you overcome obstacles when your startup hits bumps. To find the right investors for your business, ask the right questions before taking any investment.
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How do I find investors for my startup?
Before looking for investors, it is important to understand what the right investor for your business looks like. For example, if you are at the idea stage then you should consider angel investors and tap into your personal network to identify angels or connections who can introduce you to potential angel investors. You can also find angel investors in angel investment networks. If your small business is more established and has some traction then you can consider raising money from venture capitalists. Angel investors might be able to introduce you to venture capital firms or alternatively you can reach out to venture capitalists directly. You can find venture capitalists using databases like crunchbase or landscape. You can also find investors by speaking with other start-ups that have raised funding to learn more about their investors and their investment criteria. Build lists of potential startup investors you'd like to partner with based on the value add they can bring to your business. Include both private investors and professional venture capital firms if relevant and rank them so that you can prioritise your outbound efforts.
How do you approach investors?
Once you have identified which investors are likely to be a good fit and ranked them in an investor list, try to identify mutual connections that can refer you. A mutual connection can be an angel investor, an entrepreneur, a former colleague or a friend of a friend. Tools like LinkedIn are a great way of finding investors who are second degree connections. Whilst warm introductions are more likely to lead to a response, some investors do prefer cold emails. In this case, it is important to understand an investor's investment process and the types of questions investors will ask you before you reach out so that you can be successfully prepared.
Instead of approaching investors, you can also make yourself approachable to investors. For example, you are likely to attract potential investors by displaying yourself as a founder on LinkedIn or by publishing thought leadership on blogging platforms like Medium. Investors like to be on top of trends and new companies so they will nearly always want to speak to new early stage founders even if they don't know much about your business or industry. In this case, it is important to manage expectations and conversations as speaking too soon can be counterproductive and close doors later down the line.
What do you need to win over investors?
Whether you are raising money for your new business idea or to help grow your small business to the next stage, investors will want to understand if your business plan is likely to generate a significant return on investment for them and whether you have what it takes to execute your business strategy. Investors will ask a number of questions to form a conviction about your company and will do additional due diligence to check if your track record or traction is real. Before pitching to investors it is important to understand their investment process to increase your likelihood of securing funding. For example, an angel investor investing their own money will usually be able to make a decision much faster than a venture capitalist because they won't need to go through internal processes or via an investor committee to make their investment. Finally, securing the funding is only half the battle and you will then need to use it to successfully grow your business, scale your product and secure new customers.
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