Building your startup not only requires time and skill but also capital. Of course, this depends on the type of business that you are starting. Service-based businesses usually do not require a big investment. On the other hand, startups building or producing a physical product might need a huge amount to reach their goals.
Many questions pop up in the mind of the entrepreneur when it comes to getting an investment. In this article, I will try to answer some of them. In this article the question “What is the best funding type for our company?” will be answered.
There are a couple of different funding options entrepreneurs can choose from.
Crowdfunding
The idea behind crowdfunding is to fund a project or idea by raising money from a large number of people. This is a unique opportunity to sell your idea directly to the consuming public and test the market. Crowdfunding might not be the best solution for companies that offer business-to-business solutions though.
Angel investors
Angel investors are individuals who invest their personal capital in exchange for equity in that company. They invest small amounts in startups that are still at the seed stage. Entrepreneurs need to approach the right investor, who will not only invest money but mentor and share their networks as well.
Venture capital
Venture capital (VC) funds invest in companies in exchange for equity in the companies they invest in. This type of investment usually occurs after a seed funding round. Their interest is to generate a return through an eventual exit event, such as an IPO or trade sale of the company. Venture capitalists usually invest bigger amounts than angel investors.
Other considerations
Other sources of funding could include a business loan from a bank or getting help from family and friends. In some countries, there are government-owned investment organizations that can support startups by offering different types of grants.
The main step before you look for investment is to consider if you really need one. Many companies use bootstrapping because sometimes the best funding option is not to seek investment at all but to focus on execution and build traction without outside interference.
While I’m sure we all assume that our ideas are magical and that every clever investor will come running, unfortunately, this is not how it works in the real world – unless your idea can cure diseases or make us immortal.
So we’ve covered the different types of investments available, but what if your idea cannot work miracles and you need to work a bit harder to get investors interested?
Here are a few important points they might explore when considering to back you:
Overview of the market
To make any investor believe that your idea will be the next Google or Facebook, you must know your market and most importantly if there is a market for your product/service. You should also look at your competitors and how they are operating in the market. Find out what will differentiate your idea from theirs.
Powerful team
For most investors, the idea and the team behind it carry the same weight when deciding on whether to invest. Motivation and hard work will mean that you can handle any problem and reach all your business’s goals on time.
Understanding your potential customers
You must analyze your customers and what they want. Who is your target market? Do they need your product? How do they make their decisions, and what influences their buying process? Make sure you have answers to all these questions before showing up in front of an investor to pitch your idea.
Strategy
The truth is that the main reason people invest in any company or idea is to earn back more than they put in. Bearing this in mind, you must prepare market and financial strategies. Show the investor what will be the cost of new customers and when you plan to break even and start making a profit. In the best possible case, go and test your strategy before pitching your idea.
Scalability
Is your idea scalable? I bet you will hear that question when introducing your idea. Carry out research and imagine where your product will be in five years from now, what it will look like and what value it will bring?
Include them all!
All of the above-mentioned points should be included in a business plan. Spend as much time as possible looking into every aspect and evaluating every possible outcome.
If you want to have more leverage, test your idea with potential customers. See what they think about it and if they will spend money on it.
Getting an investment is a long and frustrating process. In the previous two sections, we discussed various types of investment and what entrepreneurs need to prepare to get some. Assuming that you figured that out and you have your pitch ready, now is the time to find out where to look for investors.
The good news is that you can meet investors both online and offline.
Events
There are many different events organized all over the globe every year where you can pitch your idea in front of investors and entrepreneurs. You should look for events that match your industry.
Contests
Participating in a contest is a great way to expand your follower base and attract investors. Many universities and organizations hold competitions in which you can test your ideas and receive valuable feedback. A good example is the Venture Cup.
Internet
Websites like AngelList and Gust are great tools for finding investors. You can submit your idea and start searching for the right people to bring money or value to your business. Social media sites are another powerful channel where you can seek funding. There are hundreds of groups created to support entrepreneurs.
Or perhaps a mixture
You can achieve your goals faster if you use a mix of all the above-mentioned channels. Submit your idea in a contest, pitch it at different events, and list it on the web.
As I mentioned at the beginning, seeking investment is a long process and unfortunately, you will receive a lot of rejections along the way. Every investor wants to bet on the winning idea. You need to convince them that your company will make a good return.
Do not forget to look for the investors operating in your company’s area of expertise and never give up.
