Funding a new business can prove a challenging task for entrepreneurs as they go about choosing the right and reliable source of funds for their startup. Before you begin hunting for your investors, make sure your business is appealing to the investors.
For instance there are many industries like retail, health care, manufacturing and technology. Investors view simple technology businesses more viable and less risky than hotel, real estate or manufacturing business. In order to attract startup investors, you would need to convince them with information about your type of business (B2B or B2C), sales, competitors, revenue model and so on.
Steps on How to Find Investors for your Startup Biz/Inventions
So then let us look at how to find investors for your start up business. The most sought sources for finding investors are angel investors, venture capitalists, friends and family, government grants, self-financing, finance companies and business circle. You may take careful steps in finding investors for your startup venture but you need to be prepared to encounter and resolve conflicts that may arise among your investors.
Self-financing is the best option for your start-up business because it is a hassle-free fund raising solution and being a start-up, there are no records of operations or sales based on which funds can be raised. You as the founder will be able to exercise 100% control over the company’s equity, board and the exit strategy. When the required capital is on the higher side, then apart from self-finance you need partners to fund your business.
Family, Friends and Relatives
This is one of the easiest source of raising funds for your business. People who are known to you may find your business feasible;show their interest in investing and become a partner. However since your family becomes the closest reference, they need to understand the purpose of the investment and the risks involved. The startup may turn out profitable or leave behind nothing. Make sure that the investment is not a burden to them.
An individual investor who is rich is called an Angel investor. Before you approach the angel investor, you need to create trust in the minds of this individual. Such individuals prove to be an excellent source of contacts and advice. Even if this individual is not willing to invest, you can request and get similar references of people who would be interested to invest in your business.
Checkout some of the popular websites that can help you find angels in your own industry or city. There are two things which needs a mention with reference to start up and the angel investors. One is the Exit strategy and the other is Valuation. Angels prefer to invest in companies that have an exit strategy i.e. founders must be ready to sell the company or go public so that they can get their capital back. Valuation in the early stages of a start up is very low. At this point of time you can sell cheap stock to popular angels because as the company grows with time, the valuation also rises. You may also look for an angel group for investment. Angels aggregate and invest as group collectively or individually into a business.
Venture Capital fund
Venture capital firms are companies that invest other people’s money in large amounts. Their investment contribution is when a startup has been initially funded by friends or angels and the business is heading to the next stage. These investments are harder to get and because VCs invest several million dollars, the money comes with more restrictions. Compare the term sheets of the venture capital companies and you can decide as to which company can prove a good partner to your business. Take the help of an adviser if you need to make a good decision.
Raising funds for a startup business is not easy and it is not that difficult either as long as you know what you want. You must be able to relate your business in relation with the ROI for your investors – as long as you can do just that, you will get your startup up the ladder of success.
Which other way can startup business owners find investors for their inventions and ideas without having to lose anything in the process? Do you have any addition or subtraction for this post? Let us discuss about them in the TechAtLast community below.