Finding and securing potential investors for your startup can be crucial for the success of your company. Learning a few proven strategies can help you accomplish this goal. In this article, we discuss the benefits of securing investors for a startup, provide steps on how to find investors and offer tips for networking with potential investors.
Benefits of securing investors for a startup:
Here are the primary benefits of knowing how to find investors for a startup:
Provides a solid base for your startup idea: Most startups originate from an initial idea, which then requires funding and personnel to turn into a functioning business. Securing investor funds helps you hire the required employees, invest in production equipment and have enough funds to sustain daily operations until the business generates enough income.
Helps the company quickly gain market share: When a startup company comes up with a new idea for a product or service, one of its immediate goals is to capture as much of that respective market as possible. Quickly attracting new customers implies heavily investing in marketing and sales, which you can achieve with the help of an investor.
Allows you to take more risks than a bank loan: While some startup businesses choose to finance their initial operations by taking up a loan, this typically limits the amount of money they can access, as banks tend to limit their risks. An investor is fully aware of the risks involved and may inject more cash into the business if they feel it has enough potential.
Gives you access to funds that you don't need to repay: If you finance your startup with the help of a business loan, you need to repay the loan plus additional interest, regardless of your startup's success level. Although investors usually expect a share of the company's future profits, you don't need to repay them until the company becomes profitable.
Raises your company's standards and ambitions: Investors generally want to make as much of a profit from an investment as possible. They can help you and the rest of the startup's staff set higher goals and keep you focused on your way to achieving them.
Gives you access to their business network: People who invest in startups usually have a well-developed business network. Because the success of your company is in their best interest, they're likely to help you by connecting you to various people and organizations that may help your startup.
How to find investors for a startup
Consider following these steps on your way to securing investors for your startup:
1. Ask family and friends
The first people many startup entrepreneurs consider when they need investors are often their own friends and family. It's also usually more cost-effective, as people who are close to you are more likely to offer you the money in more advantageous conditions than a professional investor or a bank. You need to decide whether you want to ask them for a loan or an actual investment, which usually means you giving them a proportion of future profits.
Although convincing friends or family to finance your business may seem a straightforward and easy way to secure funds, it's usually a good idea to treat them like regular investors and properly explain your plans and the risks associated with them. Having professional connections with personal acquaintances can have unwanted consequences unless you make sure you properly communicate with them every step of the way.
2. Look for equity financing sources
Equity financing means receiving funding from an outside party in exchange for a share of your company. Although giving up a part of the company to someone else may not seem attractive at the startup phase of an organization, it allows you to raise money quickly and use it to get your products on the market. There are many places you can find equity financing, such as investment firms, online crowd-funding sites, incubators, accelerator programs and online groups.
3. Apply for a small business administration loan
The Small Business Administration is a government agency that was created with the purpose of helping small businesses. Although they don't directly offer loans, they can help connect you with approved lenders and may guarantee the loan for you, which means that the lending institution can give you much better repayment terms and interest rates. Besides helping you gain access to funding, Small Business Administration can also help you gain information on how to develop, launch and grow your startup business.
4. Find private investors
Private investors are people who look for business opportunities to invest in, usually in exchange for equity in the respective organizations. The two main types of private investors are:
Venture capitalists: A venture capitalist is an investor who provides companies with capital in exchange for various privileges, such as an equity stake, a place on the company's board of directors or a percentage of the company's future profits. They can be individuals or venture capital firms and tend to choose startup companies with higher than average growth potential.
Angel investors: An angel investor is usually a person with large amounts of disposable funds who seeks promising startup companies to invest in, usually in exchange for equity. As opposed to venture capitalists, who invest with the sole purpose of generating a significant profit from their investment, angel investors are usually more concerned with the organization's long-term future.
Tips for networking with investors
Consider these tips when networking with potential investors:
Have a thorough business plan. Unless they're friends or family, investors usually analyze many startup companies before deciding to invest in one. You can improve your odds of making an investor choose your startup by having a thorough business plan that clearly outlines what your organization is aiming to achieve, how you plan to do it and what your timeframe is.
Be prepared to refuse an inadequate offer. When networking with potential investors with the purpose of securing funding, you're likely to receive deal offers that may require you to give up more equity or managerial control than you're ready to offer. Although securing an investor is a major step in the life of a startup, you need to set clear boundaries regarding how much you're willing to give up and refuse offers that don't meet those criteria.
Have a 30-second pitch ready. When meeting potential investors, they may not have the time to listen to your startup's entire story. Prepare a short pitch, only half a minute long, which briefly explains what you do and what you're hoping to achieve.
Have your finances in order. Although startups rarely have very complex financial records, it's important that they're in perfect order and ready to present to a potential investor. Having all essential information available can be a sign of a safe investment and may improve your odds of finding the right investor.
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Every business idea needs a solid financial footing to get launched. After exhausting the goodwill of every family member and your friends, entrepreneurs have to try new ways to find investors to land the funding they need. This article shares several strategies to help aspiring businesses find investors and fundraise.
Your business needs capital to grow. Typically, the first investors (after yourself) are people who know you well already. But, your business idea could keep growing even after you’ve tapped your contact list. Really, that’s what you’re hoping for, right? So, then you need to try new avenues to find investors, including:
- Pitch night events
- Participating in incubator events
- Angel investors
- Venture capitalists
When it comes to finding your investors, it helps to start small and work bigger . These strategies reflect that idea.
Looking for local investors in your community is a good place to start. Networking opportunities abound:
- Industry associations
- Chambers of Commerce
- Meetups for your industry area
- Co-working spaces
- Specialized affiliation groups (e.g., Women Entrepreneurs or Veteran Business Association)
Not sure where to find these groups? Try online directories , use your social networks, and attend conferences. You might also search competitor websites and see what organizations they list participating in.
This networking can pay off in terms of finding investors but also by helping you develop relationships that support your funding goals. For example, at that local Small Business Administration workshop, you might not meet any investors, but you can get to know people who can connect you to them. These warm introductions can help set your interest meeting off on the right foot.
Pitch Night Events
Attending events helps you gain visibility. Participating in pitch nights allows you to present your idea. You’re going to need to practice to pitch well. So, the more you pitch, the better you’ll know what works and doesn’t in garnering investor interest.
Different investment groups will host pitch nights, perhaps monthly, quarterly, or annually. Some industry conferences will also have a pitch event on their schedules, so look there too.
Participating In Incubator Events
Accelerator programs are geared to providing startups with the tools they need to be successful. Startup accelerators can be run by non-profits, business schools, civic groups, the government, and others. They will host incubator events to help entrepreneurs problem solve and succeed.
You can apply to develop your work as part of their incubator events. Often, you get funding to continue work on your business as well as access to business advice and mentoring . You’ll also meet other entrepreneurs looking to jumpstart their business success too.
Several online sites let individual investors contribute to ideas that inspire them. You can look for donations (e.g., Kickstarter, Indiegogo ) or offer equity in return (StartEngine, WeFunder, SeedInvest). In 2020, equity crowdfunding in the United States raised $214.9 million (a 105% growth from 2019). The number of investors in equity crowdfunding increased 75% from 2019 to 358,000.
The advantage for you? You are going directly to investors and not having to bother with a middle man. If your idea catches on, you could also quickly generate a lot of money while simultaneously raising brand awareness. However, know that according to startups.com , only 50% of campaigns are successful.
What is an angel investor? We covered that in a recent article, but in short: they’re wealthy, not winged. Typically involved early in the business generation process, these individuals or groups put money into startups before they are proven and scaling up.
You may never need to partner with a venture capitalist (VC). Perhaps all your previous efforts finding investors will get your business where it needs to be, generating revenue without the help of these large-scale investors. Typically responsible for a large pool of funds, VCs get involved later on in the game. They provide major sums of money to help a thriving entrepreneur scale up faster, more effectively.
Finding Investors Means Pitching Investors
Working with friends and family, you don’t have to prove your business idea with the same rigor. But, once you move beyond your immediate contacts, you’ll need to get out there and persuade between investing in an untested idea or startup business model.
You’ll need a business plan , a company mission and vision, and clear goals. And you need to communicate it all concisely and clearly. Make sure you have an online presence potential investors can research. Look for a future article sharing tips on how to effectively pitch your idea to investors.
Angel investors are wealthy, experienced businesspeople who invest their time and money in your high-growth business in exchange for equity.
“There are anywhere from 20,000 to 50,000 angel investors in Canada,” says Yuri Navarro, former Executive Director of the National Angel Capital Organization (NACO). “Beside the visible community, there are many who invest, but who don’t advertise it.”
Angels are often the first ones to invest in early-stage businesses and that carries a lot of weight in the eyes of future investors.
“It’s a vote of confidence that can help attract venture capital funding,” says Dominique Bélanger, Managing Partner, Growth Venture Co-investment Fund at BDC Capital.
Navarro and Bélanger offered tips to keep in mind to increase your chances of finding angel investors and persuading them to fund your company.
1. Make sure your company fits the profile
“Only about 5% of companies that seek angel investments are successful,” says Navarro, whose organization counts more than 2,000 angel investors as members. “That shows you how competitive it is out there.”
Start-up financing is high risk, so angel investors need to generate sufficient return from their winning investments to offset the losers. That’s why angels are typically looking to multiply their investment by 5 to 10 times. Your company has to have that kind of growth potential to attract their interest.
2. Get your business ready
It’s rare for an investor to consider an opportunity from the same entrepreneur more than once, so you need to be ready the first time.
Angels typically invest in companies that not only have great ideas, but a great team, and a track record for executing on ideas.
“Revenue is incredibly important,” Navarro says. “Investors are looking for commercialization stage opportunities, not concept stage opportunities.”
3. Seek out investors
There’s a variety of angel groups across Canada. Go on their websites to get a better idea of what investors are looking for.
Connect to other entrepreneurs in your industry and find out how they met their investors. Your lawyer or accountant might also know some wealthy individuals.
Another great way to meet angels is to work with an accelerator. “There’s a lot of angel activity around accelerators,” Bélanger says. “The start-ups have gone through a highly competitive selection process and this is great validation for angels.”
BDC Capital is partnering with seven accelerators across Canada. Start-ups are put through several months of intensive business training and mentorship to improve their chances of success.
4. Start building relationships
Start developing relationships with angels before you need money. They will be more receptive to a conversation about an investment when you’re ready.
5. Make sure there’s a good fit
Angel investments are long-term marriages. Once you’ve identified an angel you want to pitch, learn as much as you can about them. What are they investing in? Why do they invest? “Know who you’re dealing with,” Bélanger says. “They will also want to know a lot about you. You’re going to be together for the long run.”
6. Work on your elevator pitch
Time really is money for wealthy investors. Prepare a brief, compelling story about your business, focusing on the problem your product or service solves. Why would people pay for it? What have you achieved so far?
Before you walk into the room, it’s important to have done your homework. You have to know your industry and your competition—hopefully, better than the investor.
But don’t assume you know everything. Be open to advice and criticism.
7. Be realistic
Overestimating what your business is worth is one of the most common deal-breakers when dealing with angels.
Base your valuation on the measurable success you have had to date. While angels recognize there’s potential for growth, it’s still an investment in the value of the company today.
8. Prepare for due diligence
Investors will usually want to see your financial statements, including any outstanding debt as well as the ownership and legal structure of the company.
Having all this information ready can significantly accelerate the process.
9. It’s not all about the money
Most angels are entrepreneurs themselves who’ve been through the highs and lows of managing a business. Their advice is invaluable.
“Yes, they are wealthy individuals hoping to have a significant return on their investment,” Navarro says. “But often the largest motivation for angels is to give back. Most are there to support young entrepreneurs develop their vision.”
When you’re ready to start talking to investors, one of the most challenging parts can be just that: actually talking to investors.
Most venture capitalists and angel investors receive dozens of pitches every day and simply don’t have time to meet with everyone. To make it more difficult, it’s not uncommon for first-time entrepreneurs to need to speak with 50+ investors before closing a round of funding. So as an entrepreneur, you’re going to need to identify dozens of people who could potentially be interested in your company.
The good news is, there are now more resources than ever to help you find the best investors for you—and actually reach them. Here are five tricks I found useful in getting meetings with the right people.
1. Build an AngelList Profile
AngelList is a great way to both learn about investors and let them learn about you. Creating a profile—including specific info about your company, product, and team members—makes it easy for people who are interested in your space to find you.
Once you’ve filled everything out, share your profile with your friends and professional acquaintances and request references. When people follow your company, it will show up to others they know (and hopefully pique their interest). When we were fundraising, I watched for new investors who chose to follow InstaEDU or my personal profile and sent each one a personal note. This ended up leading to several meetings and one investment.
2. Create a Strategic List of Investors You’d Like to Meet With
Given the odds of any individual meeting resulting in an investment, it’s easy to want to cast as wide a net as possible. But given that more than 500,000 people in the U.S. have made angel investments recently, you can save yourself a lot of time and hassle if you focus your initial efforts on the 30-50 investors who are most likely to be a good fit for your company. (You can always expand the list later.)
I started by going through the education section of AngelList to find people who had invested in other edtech companies that weren’t directly competitive with us. I then took the list to other entrepreneurs and asked for their thoughts on who I should add or remove from the list, based on their experiences. Fellow entrepreneurs are an invaluable resource for helping you identify potentially interested investors not yet on your radar, as well as for flagging investors known for being difficult to work with or who aren’t actively investing.
From this process I ended up with a list of about 40 investors who I thought would be most beneficial to meet with. I entered all of them into a spreadsheet and included firm (when applicable), mutual connections, education investments, other relevant investments, location, and any notes I wanted to remember (e.g. has two kids in high school).
3. Comb Your Networks
Because investors receive so many pitches, they often highly favor companies that are introduced by a common contact. (Think about how much stronger an applicant is at your company if he or she is referred by a current employee!)
So once you have a list of investors you’d like to meet with, go through it person-by-person and see if you have any mutual acquaintances. If so, great! But before you ask your contacts for an introduction, get together with them first so you can show them how awesome your company is. Ideally, your common connection should feel like he or she is doing a favor for both you and the investor by making the intro.
When we were fundraising, once someone agreed to make an introduction, I would send a 3-4 sentence pitch on our company so he or she could include it in the initial introduction email. Then I watched closely for the intro so I could follow up as quickly as possible. Elad Gil has a great blog post on answering investor intro emails, which I found really helpful in drafting responses.
4. Thoughtfully Craft Your Own Introduction
Of course, there will likely be some investors who you can’t find an introduction to. When this is the case, you simply need to be more thoughtful and selective about who you reach out to, crafting emails that prove you’re not just sending out hundreds of cold emails to investors. For example: “I don’t usually send cold emails, but between your investment in Company A and your involvement with Project B, I couldn’t help but reach out and introduce myself.” When we were fundraising, I had a good response rate from the investors I reached out to cold, but that’s because I didn’t reach out to many, and when I did, I had a very specific reason why I thought they’d be interested in InstaEDU.
5. Give Investors a Reason to Reach Out to You
As much as your company wants to find great investors, investors also want to find great companies—meaning the courtship goes both ways. So, make sure you spend some time putting yourself out there. Even if your product isn’t live, you can still generate attention for your team and your mission via thought leadership. Degreed, another edtech company, did a great job of this pre-launch, writing guest posts for tech blogs and starting conversations on Quora. After a personal blog post of mine was shared by StartupDigest, I had a number of investors introduce themselves and ask to meet.
Now, even with the best fundraising tactics, be prepared to get turned down by investors or not hear back. Don’t let that get to you, but also don’t be afraid to be diligent about following up in a professional manner. If you don’t hear back in a week, send a quick follow up. After that, continue following up if and when when you have news to share (e.g. a product launch, key metric that you hit, commitment from a notable investor). This also applies to investors you’ve met with but haven’t heard from since.
You’re going to hear a lot of “Nos”—but that just makes the first time you hear “Yes!” that much more exciting.
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Strategic connections can help a startup more than big checks early on
As an early stage founder, you’re likely already thinking about the next big milestone: a Series A investment, which will provide the capital you need to scale, as well as institutional validation for you, your idea and your team. Getting there won’t be easy. In fact, only 20 percent of companies that raise a seed round ever go on to raise a Series A, according to an analysis of more than 35,000 startups by Radicle Labs.
So what distinguishes the successful ones? We work with more than 5,000 seed-stage startups, and, while there’s no single predictor, we’ve found that the companies that do best tend to choose initial investors for the guidance they can provide, not necessarily the size of the check they’re offering.
In fact, strategic help from an angel is, in my opinion, the most valuable asset any early stage company can get. And it’s worth accepting a smaller check or less-generous terms from someone who can introduce you to potential customers, suggest ways to improve your product or provide access to a network of future investors.
These contacts likely will have the biggest impact on your success and, eventually, your ability to pitch VCs successfully. Focusing your fundraising on well-connected angels now not only will give your business a head start, but also will save you from having to look for these connections later—perhaps after you’ve already given away some of your company to investors who aren’t as helpful.
Strategic help from an angel is . the most valuable asset any early stage company can get.
Connecting with Angel Investors
Figure that you’re going to burn through at least $500,000 before you raise a Series A. And, yes, getting to that amount will be daunting enough without the added challenge of limiting your potential investor pool to people whose experience aligns with your business plan. But that’s startup life. Hopefully, this isn’t the first time you’ve heard it’s going to be a lot of work.
Luckily, there’s a strategy. It’s no guarantee of success, but it’s a way we think maximizes your chances of getting the support you’ll need.
1. Master your LinkedIn-Fu
Start by building two lists: one of angel investors with relevant subject matter expertise or who are well-connected in the field you’re targeting, and another of people you know or can get an introduction to. You can build these using LinkedIn. The sweet spot is people who are on both lists—they’re your starting point. But as you’ll see, it will make sense to maintain two lists.
2. Start with friendlies
It’s going to be tempting to use that connection to an A-list VC. But most seed-stage companies aren’t ready to pitch a top investor or even take an introductory meeting. Most times, you’re only going to get one shot with these people. If you don’t have traction with customers and a story that’s been refined through dozens of pitches, you risk being forced into conversations before you’re ready for them.
Instead, reach out first to people you’ve worked with before or know personally. If you don’t have anyone like that in the both-list category, find the people who are connected to the insiders and ask to meet with them.
3. Focus on feedback
Never use a meeting to ask for money. Instead, use the time to share your idea, your business plan and progress to date, and to solicit any advice you can get. Your goal should be to get someone excited about what you’re doing and get an agreement to stay in touch.
Everyone knows you need money. But few investors will ever cut a check based on an initial meeting alone.
4. Plan on drinking a lot of coffee
Finding the right angel investors are going to take a lot of meetings—more than many entrepreneurs expect. A good rule of thumb is 50 introductory meetings.
But these meetings are a great opportunity, even when they don’t lead to funding. You’ll also start to build a network, which will pay off big when you start to hire.
As you talk to people, you’ll hone your pitch. You’ll want 90 second and 5 minute versions down solid. You should be able to cover why your company matters and why it’s relevant now, your team, product and market, your go-to-market plan, customers, prospects and growth strategy.
5. Get plugged in
Join groups like Startup Grind, read a lot, engage in online conversations. Events can be a great resource, but be judicious and decide which events to attend based on who is in attendance and who the speakers are. Go with the goal of meeting those people.
You’ll want fellow founders in your network. Don’t obsess over someone stealing your idea, as there’s so much more that goes into building a successful startup. The advice, connections and ability to commiserate that can come from a close relationship with another founder at a similar stage more than outweighs any risks.
We often talk about the difference between smart money and dumb money. In both cases, you’re getting someone who is banking on your success. But only the smart-money investor has the experience and connections to help you get there.
You’re going to want a partner who will put in time on your behalf, going over product specs, arranging meetings with potential customers and helping you find more investors. In short, you want value. It’ll be a lot of work. But from what we’ve seen, it’s the best investment you can make.
For more helpful tips for early stage companies, check out Startup Insights, full of stories from the front lines of entrepreneurship.
5 Tips for Finding an Angel Investor for Your Business
Is there a small business that hasn’t needed more capital at some stage of development? And is there a small business owner who hasn’t thought of angel investors as an ideal source of the capital needed? But finding angel investors isn’t like finding clams on the beach; the search is more similar to finding the pearl. Here’s how to find angel investors that will be most likely to want to invest in your business.
1. Know Who You’re Looking For
Your chances of connecting with the angel investor you need will be much better if you keep this profile of the “typical” angel investor in mind. According to Ralph Kroman of WeirFoulds LLP, the typical angel investor:
- Has an income that exceeds $100,000
- Is 40 to 60 years old
- Has a net worth in excess of $1,000,000
- Has previous successful entrepreneurial experience
- Expects to hold on the investment for up to five to seven years (although some angels wish to “cash out” after only a few years)
- Enjoys advising the entrepreneur and likes to be part of the action
- Invests up to $150,000 but may participate in a syndicate of other angel investors bringing the total investment to multiples of individual investments
- Refers deals to other private investors even if the angel has chosen not to invest
- Likes to invest in an industry with which the angel is familiar
- Sources deals through referrals
Angel investors look for companies with growth and export potential says Allan Riding, an expert on angel investing and professor at Carleton University. They understand that it may take several years before their investment will pay off – although they also expect to be well compensated for their risk.
2. Look Close to Home
Because so many angel investors like to play an active role in the business they invest in, they prefer to invest in businesses that are close to home. "An angel wants to be nearby so they can drive over to talk to the principals," says Jim Orgill, managing director of advanced technologies for the Business Development Bank of Canada.
3. Network, Network, Network
In most cases, you need to be referred to an angel investor. They’re not hanging out on the street waiting to talk to whoever comes by. So to find angel investors you need to get to know the right person (the one who can refer you to the angel investor you’re looking for), which means immersing yourself in your local business and social community.
Focus on business owners – as these are the people who might be or become angel investors themselves or know an angel investor. Join business and trade organizations and regularly attend the meetings. Joining civic and community organizations are also great for networking. Attend trade fairs and events. Get your face and your name out there and meet as many people as possible.
4. Realize That Many Angels Don’t Fly Solo
While there are some angel investors who invest entirely on their own, many operate as part of an informal network or syndicate where they can pool their resources and share the risks.
Check with the Business Development Center, Community Futures Office or Economic Development Centre where you live; there may be an active group of angel investors in your community.
5. Use the Connection Services Available on the Internet
You may be able to hook up with an angel investor through one of the websites that provides entrepreneur and angel investor matching. If nothing else, you can at least get your business proposal before a wider audience. Here's just a sampling to get you started:
Angel Capital Association (ACA) – The largest professional development organization for angels in the world, ACA boasts over 14,000 member accredited angel investors and over 250 angel groups and accredited platforms, making this website a great resource for finding angel investors throughout the U.S., Canada, South America, and the Middle East.
Gust (formerly Angelsoft) – Claiming to be the world’s largest startup network, with over $1 billion of funding raised through their extensive angel network, Gust lets you complete a single application for hundreds of angel groups across the world.
Canadian Investment Network – A service to connect entrepreneurs with angel investors. Posting your confidential proposal is free; If their matching service finds an investor who desires to pursue your opportunity further, you pay a one time, first contact fee. Or you may choose to pay upfront and receive premium services.
Angel Forum – Technology and non-technology pre-screened companies seeking equity financing of $100,000 to $1 million, deliver “live” presentations to pre-screened private and corporate investors.
Note that these websites do not directly provide investor funding; what they offer is the chance to make the connection with angel investors that may be interested in what you're offering.
The Hunt for Angel Investors Is Worth It in the End
Finding an angel investor is not a particularly easy task, but the effort will really pay off when you find the angel investor who is willing to invest in your business. Besides providing the capital your business needs, the advice and know-how of an angel investor can be key to shaping your company’s success.
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Marc Andreessen is a cofounder and general partner of the venture capital firm Andreessen Horowitz. Marc co-created the highly influential Mosaic Internet browser and cofounded Netscape, which later sold to AOL for $4.2 billion. He also cofounded Loudcloud, which as Opsware sold to Hewlett-Packard for $1.6 billion.
Union Square Ventures
Fred Wilson has been a venture capitalist since 1987. He currently is a managing partner at Union Square Ventures and also founded Flatiron Partners.Fred has a Bachelors degree in Mechanical Engineering from MIT and an MBA from The Wharton School of Business at the University of Pennsylvania. Fred is married with three children and lives in New York City.
First Round Capital
Josh Kopelman has been an active entrepreneur and investor in the Internet industry since its commercialization. In 1992, while he was a student at the Wharton School of the University of Pennsylvania, Josh co-founded Infonautics Corporation – and took it public on the NASDAQ stock exchange in 1996.