Startup investors search for entrepreneurs with prosperous ideas that need financial assistance launching their business. As an entrepreneur it can be challenging to find investors for startups. It’s critical to have a plan and find the right investors. It’s also important to set up a manageable repayment plan. Throughout this blog we will teach you about the various types of funding for startups, how to find investors for startups, and how to attract investors for your startup. Keep reading to learn more.
How to Find Investors for Your Startup
Finding investors for your startup may be one of the most important steps you must take in order to secure a prosperous future for your business. You personally cannot be expected to fund the entire startup on your own in most cases. If you are able to, that may be a good thing to maintain your independence, however, is it the best thing for you financially?
Many startups enter into the fund seeking stage of their development unprepared and not knowing what their options are. There are plenty of options available for finding the financial backing that you need to get your business off the ground and running. As there are so many options available, let us just take a brief look at a few of these options in more detail.
- Ask Friends or Relatives: Asking friends and relatives for money to fund your startup can be a tricky arrangement if you are not careful. First thing first, do not be too casual with your friends and family just because you “know” them. Pay them the respect of preparing a proper business pitch explaining your business plan, planned upfront expenses, and realistic revenue forecasting based on the information you have. If you are only asking for a loan, make arrangements for when you can begin making payments, how much you expect each payment to be, how frequently the payments will be sent, when the loan will be paid in full, and how much interest they will earn on the loan. If you are looking at a friend or relative as an investor, be sure they understand how long it could take before you become profitable and when they can expect to see some sort of return on their investment. Make sure they understand the risks that both of you are taking and that there is a chance that the business will fail and no-one will make money. Again, be careful when mixing your business and personal relationships, because one wrong move, or if the outcome is not what was hoped for, then your business relationship may dramatically impact your personal relationship.
- Apply for an SBA loan: The Small Business Administration offers loans through various lenders that help many new startups get started. Some of the loans are guaranteed by the SBA which can help a new business secure generous repayment terms and much lower interest rates than other business loan types, like term loans and merchant cash advances. The SBA also offers some grants for new businesses if they are eligible. Grants do not need to be repaid. The SBA offers various types of loans depending on the characteristics of your business and what you need the funds for. There are SBA 7(a) loans which guarantee portions of the total amount, puts a cap on interest rates, and limits fees. Then there are 504 loans which are fixed-rate loans that can be used to purchase or renovate real estate, fix equipment, and/or fix machinery and other assets. Another option through the SBA that is worth considering is a Microloan. Microloans are capped at $50,000, but they are intended for startups who service disadvantaged communities.
- Crowdfunding: There is reward-based crowdfunding where individuals can unlock deep discounts and special offers that others will not have access to by making their purchase in advance to fund the manufacturing. There is donation based crowdfunding where you ask for donations from friends and family and others who believe in you and your product and are willing to help you get started for nothing in return aside from simply supporting your dreams. Then there is peer-to-peer lending where financiers are coupled with startups based on compatibility and then a loan is given to the startup in return for monthly payments plus interest. The startup pays lower interest than a typical term business loan, and the financier earns more interest than having money sitting in a savings account. The last type of crowdfunding worth exploring is equity crowdfunding. Investors can make large investments into a startup in a hope to get a return on the profits in the future. There is no agreement about returning the original investment, instead the investor is hoping that by taking a share of the profits, they can double, triple, or 10-fold their initial investment.
- Equity Financing: The process of raising funds through the sale of shares in a company is called equity financing.
- Private Investors: Private investors are a common source of funding for startups. There are two main types of private investors. There are angel investors and venture capitalists. Angel investors are people who already possess large liquid assets and have a proven track record of making businesses profitable and successful. When an angel investor comes on to a startup, they are typically bringing not only their money, but their expertise as well. They will expect to be paid handsomely for their efforts, but most often, it may be worth the cost if you are looking to ensure a stable future for your business. The other type of private investor is a venture capitalist. Venture capitalists represent funds that can be used to invest in startups on behalf of pools of investors who pay into the fund expecting a return. Venture capitalists are different from angel investors in that their service is usually called upon once a business has been established and it is looking to expand or launch a new product that could be the next big thing.
- Attend startup networking events: Attending conferences and industry events that are related to your startup may help you network with the right people to either invest in your business or to offer services that could help you grow or that could propel you to a new trajectory you never saw before. It never hurts to put like-minded people together in a room who share similar goals and aspirations and that may have similar products or services.
However you decide to search for investors in your startup, you will want to make sure you explore all the options available to you to make sure you are choosing the path forward that will be the best win-win situation for your company and your investors.
What type of things do investors look for in a startup?
When an investor is looking to invest in a new startup, they look for certain specifics that can help them make an informed decision based on their expertise and quality of idea or product you may have. They also look to see that you or your business partners have the know-how and ability to turn a product or idea into a functioning and profitable business. Here is a quick list of what an investor may look for when looking to invest in a startup.
- What is the product, idea, or service? Is it unique? Who are your competitors? Who makes up the target market?
- A business plan that describes how the product will be brought to market and that shows that in-depth market analysis has been conducted.
- Who makes up the management team? Who is handling operations? Who is the CFO? Are these people experienced enough to take on these roles and be successful?
- Financial data including financial projections, expenses, profit-to-date.
Aside from these important details, investors may want to know how and when they can expect to see some return on their investment.
How Kickfurther can help
Kickfurther is the world’s first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules, allowing your brand to scale quickly without impeding your ability to maintain inventory or financial flexibility.