How to find investors for a business startup – 5 top tips
All successful businesses make more money than they earn (assuming that they’re legal ventures…) and increasing revenue requires one simple business principle: you have to spend money to make money.
The simplicity of this principle is often taxed when the original business founders begin to run out of funds and capital to make their business work.
Almost every business requires some level of outside investment to achieve success, which makes finding investors an important part of how well a start-up will flourish and how quickly it can climb the ranks.
Finding investors isn’t as challenging as some might imagine, as there are many people who are willing to lend their funds to the right business to help everyone prosper.
Before you start seeking investment…
Although it can be tempting to try and accumulate as much funding as possible when you are starting out, too much funding can cause additional problems compared to insufficient funding.
With too much funding, you can have too many creditors requiring interest payments, equity, or even royalties that may exceed your actual revenue. Without a cash stream to pay off your creditors, you can hasten your business’ collapse.
That’s why it’s important to know why you need the funding before you start. There are a variety of reasons why you might need more funding:
- . To acquire or update equipment and machinery necessary for production or distribution
- . To hire more or more appropriate personnel to improve or expand production
- . To increase marketing to expand the sales network or increase visibility
- . To purchase property necessary for sales or production and increase revenue
Amid many other factors, knowing why you need funding can focus on how you will translate your funding efforts into improved business performance while also identifying how long this funding should last and if or when further funding would be necessary.
Once you’ve identified what kind of funding you need, you can find the appropriate source of funding.
Crowdfunding and asking the people you know
Crowdfunding can take many forms. First, you can consult family and friends for any assets they may have.
Given that they will know you personally and be more oriented towards helping you out personally, consulting your immediate contacts can often raise sufficient capital that can then be repaid as a 0% interest loan or paid off once your business starts making money.
When investing with your immediate network, it’s important to make sure that everyone is aware of any risks of investment so that you don’t lose your friends or family members over financial matters.
For those without lucrative personal associations, a variety of crowdfunding platforms such as Kickstarter and GoFundme also offer fundraising potential.
Crowdfunding requires a more nuanced approach to recruiting investors, with a well-tailored presentation of your business, product and service descriptions, and even compelling images or videos to demonstrate who you are and why you deserve the money.
Compensation for crowdfunding can be based on donation, debt, equity, or rewards depending on the platform and who is donating.
In a similar vein, but without as much presentation, Person-to-person (P2P) lending offers another digitally-backed approach to finding alternative investments.
P2P lending can be either equity-based lending, where a certain percentage of your company, sold through shares or ownership, is distributed to investors in exchange for funding, or you can use loan-based funding.
P2P funding is often easier to acquire than traditional small business loans but depending on the platform, recipients may be subjected to higher rates.
Attend conferences and networking events
Although many conferences can have pricey exhibiting fees to rent booths and other spaces during conferences and trade shows, attending these events can be a potentially lucrative proposition for startups.
Attending trade shows allows start-ups to interact with mid-level or established businesses. While these businesses may be competitors at first, they may have sufficient funds and cash flow to support a start-up that doesn’t present an explicit conflict relative to their product line.
Further, many larger companies begin to diversify their business portfolio by buying-out competitive firms. While start-ups aren’t likely to enter into the buy-out realm, approaching established businesses with funding propositions can earn valuable investment funds as well as further investment strategies that can lead to rapid expansion.
Contacting complementary businesses or institutions
Depending on what your start-up is and where you are located, there are a variety of government and university-affiliated incubators that can allow start-ups to gain value investment resources in addition to other resources that can assist their business growth.
Investment can come in the form of direct investment, whether equity-backed or through other repayment schemes, as well as zero or low-interest loans.
Given that incubators offer relatively lucrative investment opportunities but are few in number, start-ups applying to these competitive programs should have demonstrated some level of business success or offer a competitive investment opportunity relative to growth potential.
Start-ups can also contact institutions or complementary businesses regarding investment opportunities.
Institutions offer research networks with affiliated businesses that can offer a direct way to work with individuals willing to invest in a growing start-up, while complimentary businesses may see your start-up as a growth investment opportunity to support the growth of their own business.
Contact private investors or lending agencies
Venture capitalists and angel investors are individuals that specifically seek growth investment opportunities and are willing to exchange capital for an equity stake in your company.
Although typically reserved for late-stage investment, growth-oriented companies with sound business plans and which have already demonstrated effective fundraising or production capabilities are still viable candidates for working with an angel or venture capital investors.
These investors can be approached directly or often visit trade shows and conferences looking for investment opportunities.
For those not looking to give up equity in their company, acquiring a loan offers the opportunity to retain ownership while also generating funding.
Small business loans are the most reliable means of acquiring non-equity funding for one’s business, though depending on the structure and age of your business, a loan may or may not be easily acquired.
Consulting a lending agency regarding any application requirements or loan structures will better help any interested start-up find a reliable source of funding.
Post an ad on social media
When all else fails, soliciting interested parties via the internet can generate interested parties. Start-ups should be wary of any overzealous investors willing to fork over money with little promised equity or interest, as this may be a scam.
However, presenting a business proposal via Linkedin or any other professional network can help you find an investor or interested parties willing to provide capital for your business.
Although the market can be tough when it comes to getting enough funding, the variety of investment opportunities mentioned offer tried-and-true methods for generating the funding you need to help your startup keep going.