How to Get Startup Funding: A Guide to Seeking an Investor

Spending your own money is straightforward and risk-free, but few entrepreneurs can cover all their expenses solely through their own efforts. External investment helps to launch a company quickly and at the scale you initially planned.

Investing always requires the ability to communicate and reach agreements. Let’s discuss how to get investors for startups if bootstrapping is not the way to go.

The main types of investors

Angel investors

Angel investors are wealthy people who lend money to startups, frequently in return for convertible debt or ownership shares. They usually make investments in a business during its early expansion phases.

Venture capitalists

Professional organizations or teams known as venture capitalists oversee money collected from several investors and use it to finance high-growth enterprises. They usually seek equity stakes and actively participate in company decisions.

Crowdfunding investors

Crowdfunding investors are people who pool their money together to assist startups and small enterprises, sometimes through online platforms. Startups can give them merchandise, stock, or other benefits in exchange.

Impact investors

Impact investors seek to generate positive social or environmental impacts alongside financial returns. They often focus on sectors such as renewable energy, healthcare, and education.

When can I count on external funding?

The stage of a startup’s development influences the range of potential investors.

While exceptions exist, the general rule is that the earlier the stage of your startup, the harder it is to secure funding.

The main stages when you can find investors for startup business are:

Pre-seed stage

This initial phase’s objective is to transform an underdeveloped concept into a feasible company strategy. Important activities include validating the concept, obtaining market information, and developing a basic prototype, or minimal viable product.

The most popular funding sources include angel investors, early-stage venture capitalists, friends, family, and personal savings.

Seed stage

The seed stage aims to further the product’s development, build a customer base, and strengthen its market position. During this phase, a scalable business plan is created, the product is improved based on early consumer feedback, and the first marketing efforts are started.

The pull of potential investors includes seed venture capital firms, angel investors, and crowdsourcing websites. Startups having some market validation and room to develop are of interest to such investors. For companies, they may provide funding to help reach important benchmarks.

Startup stage

Often called the “early stage,” this is the period when the company has a product ready for the market and is aggressively working to expand its customer base, scale operations, and enter new markets. At this stage, there are higher chances that you will attract more investors with solid funding.

Where to find investors for startups

Online methods

Online platforms have revolutionized the way startups connect with investors. The five most popular platforms where you can find investors for startups include:

AngelList
Gust
SeedInvest
Republic
LinkedIn

Offline methods

Offline approaches to sourcing investors are still working. Attending industry conferences, trade shows, and startup events provides entrepreneurs with opportunities to network directly with potential investors. To present your idea, you can use elevator pitches for personal communication or create presentations for a broader audience if the event includes a conference.

A pro tip: start building relationships with investors before you need funding and meet them in person. Get into their investment focus early by sharing information about your company. This can be done without a personal meeting – via email, phone, or video call.

A summary of a successful elevator pitch

source: LinkedIn

How to find investors for a startup: rules of making a pitch

The golden rule is to keep your pitch short and informative and be ready for future questions.

Start with a strong opening. Capture attention immediately with a riveting story or a startling fact.
Clearly define the problem. Investors must grasp the problem you’re tackling. Be explicit and leverage data to underscore the problem’s gravity.
Present your solution. Elucidate how your product or service resolves the issue. Utilize demos or visuals if feasible.
Highlight market opportunities. Showcase the scale and growth potential of your target market. Support your claims with market research and statistics.
Showcase traction and milestones. Investors are keen on evidence of momentum. Share significant achievements, glowing customer testimonials, and impressive growth metrics.
Outline your business model. Clarify how you generate revenue. Detail your pricing strategy, revenue streams, and key metrics.
Introduce your team. Highlight the prowess and experience of your team members. Remember, investors bet on people as much as on ideas.
Address competition. Recognize your competitors and delineate what sets you apart.
Provide a clear ask. Conclude your pitch with a definitive funding request and outline how you will deploy the funds.
Prepare for questions. Anticipate potential inquiries and prepare succinct, confident responses. Practice answering common investor questions about your business model, market assumptions, financial projections, and risk factors.

source: tallo.com

Final tips on finding investors for startups

Prioritize networking. To successfully find investors for your startup, you should be noticeable. Stress networking and spread the word about your startup to highlight that you caught fire with your idea.
Be sincere. Don’t say something that you are not able to give or promise. Be straight about your strengths as well as your weaknesses. Investors have a lot of experience, and even if your business doesn’t run well, say it frankly. It’s far better if the investor will say, “We understand your business is facing challenges, but we believe in what you’re doing, so we’re committed to continuing our support,” than catch you in a lie and withdraw their cooperation.
Don’t treat those who rejected you like enemies. Even if a venture fund says no, they might still help you by sharing contacts or recommending you to other funds more aligned with your business or stage.