Benefits of Securing Investors and How to Find Them

Many people erroneously think that funding is just reserved for the successful and that those that need funding are misfiring on their own. The reality is that funding can be essential for a startup, especially for one that is just getting off the ground. To create a successful startup, it is important for the leaders of the organization to have the time, knowledge, and funds to set up and grow their businesses. But, during the early stages of running a business, most founders tend to lack one or more of those resources.

If you’re already employed elsewhere and need that income to support yourself, or your family, while you scale your business, then it’s quite safe to assume that you, yourself would not have the time that is required to efficiently work on your company. And if you spread yourself too thin, you might cause yourself to burn-out long before your startup becomes cash positive. Secondly, it’s important to remember that if this is your first venture into working for yourself, you are bound to face a number of problems - and you might not even know where to begin looking for the solutions. And lastly, irrespective of whether a business is booming or not, every company requires an injection of funds either to scale during the good times or stay afloat during the bad ones.

Fortunately, an outside investor can help in either one, or all, of those areas. Here are some reasons why entrepreneurs should look for investors for their startups:

1. Access to the right networks: Investors and entrepreneurs often know of one another, and an investment can help entrepreneurs get their name out, network with the right people, and even benefit from these connections in order to grow their company

2. Credibility: Securing outside investment, especially from a well-known individual or group, brings an immense amount of credibility to, both, your and your company’s brands. It’s akin to receiving a third-party endorsement in the entrepreneurial community which helps you get your work noticed and appreciated. Not to mention that funding stories get picked up regularly by business publications and it’s a great way for a startup to get its name out there

3. Capital: Investors, more often than not, are able to provide a significant boost in capital to a company, which can be an important resource. This capital can be used to offset your business debts, notably, raise your business’ valuation, provide resources needed to experiment and develop new products, hire employees, and pay for your marketing endeavors. But most importantly, an infusion of capital can take a lot of the stress off of the entrepreneur’s shoulders, preventing burnouts

4. Valuable perspectives: Investors can be a valuable source of advice and guidance for entrepreneurs as they navigate the early stages of maintaining and growing their businesses. A shareholder like an institutional or angel investor brings with them a wealth of experience dealing with the very same problems you might be experiencing currently. They’ve been down this road before, either with their own companies or with the ones they’ve invested in over the years, and might be able to help in crafting the right solutions for you. Depending on the extent of your backer’s involvement, they can also agree to take up an executive position in your company and help make decisions in departments you have no expertise in

Now the question arises of identifying and approaching such investors. With more than 500,000 startups launching every year (and that’s just in the United States) it is important to remember how fierce the competition can get, as only 6% of these receive any kind of investment from institutional and angel investors. It isn’t just your company that is analyzed during these investor meetings. They take stock of the company’s leadership as well - the founder/CEO’s vision for the company, how efficiently the administration is being run, how well the leadership team can handle the pressure of scaling their business, etc. Therefore, to find the right investor or group of investors for your company, you first need to understand what it is that you’re looking to gain out of the investment. Once you’ve decided on your objectives for the round of investment, you need to figure out which investors to approach, and there are multiple types you can choose from:

Friends and family - many entrepreneurs raise money from their immediate network of friends and family when they are just starting out. Usually, these raises are quite low, and not much equity is given out during the process. While this might be a good place to start for new entrepreneurs and small businesses, you have to keep in mind that the dynamics of a personal relationship almost always spill over into the business. And managing that could be a nightmare. You also have to contemplate whether your friends and family can afford to lose their investment if the business doesn’t work out, especially if this is your first venture

Angel investors - Angel investors are high-net-worth individuals or a group of individuals who invest their own money into startups. These are usually people with successful businesses of their own and have a wealth of experience at their disposal. They typically invest up to $100,000 individually but can go higher if multiple angels join together

Venture capitalists - VCs are employees of a large investment group that looks for high-potential and high-growth companies to build up the investment group’s portfolio. You can liken it to a portfolio manager of a big bank investing in the stock market. VCs have a fiduciary responsibility to the partners who create the fund pool from where the investment comes from, hence they conduct thorough due diligence. They tend to look for a great product with a smart management team and large market potential. An average investment by a VC can be anywhere between $6-$8 million

Banks and government agencies - these aren’t your typical investors but are a good source of investment. While governments are more likely to invest in startups that have proven track records and have a social component attached to their mission, banks tend to look for more mature companies. Their investments can be in the form of business credit cards, lines of credit, and advance loans at low-interest rates

After settling on a type of investor, the average entrepreneur hits another wall. Where to find them? If you’re just starting out, it is unlikely that an investor will reach out to you out of the blue. But, not to worry! There are quite a few methods of finding the right ones for you:

Online funding platforms - these are websites you can register your product/company on to get in front of credible investors. Over the last few years, they have become the number one solution for new businesses looking for smaller investments

Networking events - many investors and networking groups host events, either in person or online, to boost their visibility. If you’re targeting certain individuals, it would be beneficial to look out for any such events which your targeted investors would be attending so you have the opportunity to introduce yourself and your idea to them directly

Accelerator programs - applying to accelerator programs is becoming a common practice among entrepreneurs looking to raise funds. These events are held around the world and have a rigorous application process where each aspect of your business will be carefully analyzed before being accepted. Once accepted, you can pitch your business idea to a group of investors, against other teams, and try to woo them with your pitch!

Government programs - governments in countries all across the world give out grants to small businesses to help them grow. This is also a highly competitive process where the governing body would take into account factors like how your product or service benefits the country, what impact it can have on future entrepreneurs, how large is the market you are catering to, and other social components

Finding and securing the right investors is a tedious, yet rewarding process. With technological advancements and the development of creative marketing strategies, it has gotten easier to identify and approach investors within, and without, your country. And over time, it is bound to only get easier. But as accessibility to investors increases, so does the competition for startups, which is why you have to make sure that you stand out in one way or the other - whether it’s through the service you provide, how well you pitch your idea/business, or how well you network yourself as a founder. But at the end of the day, you are in control of the time and effort you put into the process. It always begins with the entrepreneur.