How To Find Investors For Your Start-up: A Guide For First Time Entrepreneurs
Whether you want to turn your brilliant idea into a business or expedite your start-up journey, it is important to have a remarkable business plan. There are instances where you need to raise capital so that your marketing plan works. For this, you must know how to find investors.
Be it crowdfunding, private investment market, or angel investors, choosing an investor for your business can either make or break your dreams. Hence, it is highly important to take this crucial decision wisely.
Types of Investors Are Available For You
If you are puzzled among the options available, this article will help you get a clear idea. We have broken down the types of investors available in the market. These are segregated according to your company’s development stages. You can choose your ideal investor depending on the level of your company’s growth.
#1 Idea Stage
As the name suggests, it is the stage where your business plan is under process. Basically, in this stage, you are fine-tuning the concept. Also, you can raise funds through personal finances. During this early phase, when you don’t have a working prototype, it is the best way to bag funds.
#2 Bootstrapping
You are the investor at this stage. Bootstrapping is just one step ahead of the idea stage. Here you try and test your idea and check whether it will work in the market. At this stage, using personal finances from the idea stage would be a beneficial move.
#3 Pre-Seed Stage
Once you have kickstarted your business with the initial funds, you would need more so that you sustain the current growth. Plus, this is imperative for creating a credible position in the market. At this stage, you can continue relying on the fund sources in the idea stage, and look for external avenues. Here are the external fund sources you can consider:
- Crowdfunding: Crowdfunding is highly beneficial for start-ups as it opens a new avenue of opportunities for them. There are crowdfunding websites where you can pitch your idea to the investors. The flow of funds will depend on your pitch’s impact. So you need to be highly creative and wise with your pitch in order to target better funds.
- Incubators/Accelerators: Businesses at the pre-seed stage with considerable growth can also look for accelerators or incubators. However, there is a lot of competition in a start-up accelerator or incubator program. It is a promising way to get a regular flow of funds.
- Angel Investment: Start-up angel investment is a popular approach for acquiring funds. The angel investors invest in start-ups with a high growth potential. They also look forward to considerable ROI share. These investors may also like a seat on the board of directors. In return, they can offer you staunch financial support.
Seed Stage
The seed stage is when all your initial hard work is paid off, and your business starts gaining customers. At this stage, you need to cultivate a market share and try to sustain your success rate. Seed stage can bring plenty of investment options for you. To know how to find investors at the seed stage, check out the possible options available:
- Venture Capitalists: These are private sector investors who have an abundance of money coming from various sources. These sources include foundations, corporations, organizations, etc. Venture capitalists invest in tech companies that have potential growth. You need to do deep research before approaching a VC.
- Venture Debt: Venture debt funding type is only available for businesses that have already venture-backed. In this type of funding, you can access a venture loan, irrespective of your profit status.
- SBA Microloans and Microlenders: If your funding needs are lesser, you can take a microloan approach. SBA or Small Business Administration is a government entity creating programs for connecting businesses and lenders. It can offer you loans up to $50,000.
Early Stage
The early stage is the phase where your business has developed a sales model and is able to sustain it. At this stage, you can showcase your growth data to the investors and seek better funding. Here is the range of investors available at the early stage:
- Super Angel Investors: These investors are the hybrid of angel investors and venture capitalists. Super angel investors invest large sums of money, and look for a partnership. These investors are always looking for potential and profitable opportunities.
- Reverse-Based Financing: It is considered the ideal funding option at the early stage to ensure consistent revenue. In this funding option, you can receive funds in exchange for a portion in the future revenue.
Growth Stage
It is the stage which indicates that your business has surpassed plenty of milestones. At the growth stage, you would want to optimize your business. Here you will need serious funding options. Here are the options available for the growth stage:
- Private Equity: There are private equity firms that invest in businesses via ownerships or share in the company. These firms raise funds through third-party investors like charities, insurance companies, universities, etc.
- Bank Loans: One of the most preferred options at this stage is acquiring a bank loan. Banks have lower interest rates for start-ups and are not provided with equity in the business. You need to provide a guarantee on loan and easily acquire the funds.
How To Find Investors in The Right Way?
The above mentioned were all the investment options that you can apply at different development stages. Before wrapping it up, it is important to learn how to find investors to benefit your company.
- Prepare an appealing and potential pitch
- Know what your investors are looking for in a start-up
- Look for investment options according to your company’s development.
- Sustain your growth rate in order to bag better funding options.
Funding is a crucial element to maintain the consistent growth of your company. It is important to look in the right direction when you are seeking investment help for your business. Keep this comprehensive guide handy when you want to know how to find investors for your start-up.