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Finding Investors: What Entrepreneurs Should Know

If you’re in the beginning stages of developing your business, you can rely on several different approaches when searching for investors. Learning what investors typically look for when deciding when and how much to invest is important. This guide provides insight into finding investors and tips for securing startup funds for entrepreneurs.

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What do investors look for in a startup?

There are several key factors that play a role in an investor’s decision to back a startup, including:

Market opportunity

Investors typically look at a startup’s market reach, both the current market reach and the potential for future opportunities. Therefore, startups must demonstrate that their markets are already engaging with their products or services and are providing feedback that the team uses to drive improvement. Additionally, this data can show investors how the startup plans to continue its market expansion for the long term.

Monetary gain

An investor is more likely to invest in a startup that demonstrates significant revenue potential, as this means the investor makes a profit as well. Additionally, investors look for opportunities to own a sizable share in the startups they support. In this situation, the investor will own a share of the startup, and many often seek opportunities where their share is anywhere between a fifth and a quarter of the startup’s profitability.

Product momentum

Investors prefer startups with an offering that continues to be profitable and grow into the future. For instance, if you have an existing offering you provide, you must show how your offering is more unique than your competitors and how it will continue to drive growth. Likewise, if you’re introducing a new solution or a new product, investors want to see data that shows the projected growth of demand for the offering, or product momentum.

Team management

Businesses that demonstrate a solid team structure are more likely to gain the attention of investment opportunities. For instance, investors typically look for startups with teams who have authority within the industry, a deep knowledge of their market and additional skills and qualifications that showcase the startup’s unique position to expand. Traits like these demonstrate a startup team’s capabilities to grow the business and increase revenue.

Related:Five Tactics for Effectively Working in Teams

Types of investors

There are a variety of types of investment opportunities for startups to consider and several of these include:

  • Banks: Small business loans are common sources of outside funding and require evidence of a business’s past revenue stream.
  • Angel investors: Angel investors are individual investors who fund startups that are past the seed stage but need additional growth to meet venture capitalist investment criteria.
  • Peer-to-peer lenders: Lending platforms connect lenders with businesses seeking loans where they can choose which businesses they want to back.
  • Venture capitalists: Venture capitalists (VC) work only with established businesses and make their return through owning portions of the company.

Tips for finding investors for entrepreneurs

There are many ways that entrepreneurs secure funding for their startups. The following tips highlight some of the approaches you can use to find investment opportunities for your business:

Find investors through online platforms

One approach to finding investors is to use a platform designed to connect lenders, angel investors and other personal or VC investors. Platforms like these are developed specifically for entrepreneurs seeking funding and are often highly effective for matching a business with the right investor. Additionally, some of these applications can help you narrow down the types of investment opportunities you’re looking for such as seed funding, business lending or capital venture funding.

Consider an accelerator program

Accelerator programs that support each phase of business growth are effective for finding additional investment opportunities in the future. With an accelerator program, mentors assist your business teams in outlining business plans, identifying and mitigating risks and essentially helping your business grow and establish itself enough to secure larger funding opportunities long-term.

Look for angel investment networks

Rather than seeking out individual angel investors, look within an angel network. With many angel investors in one network, you can find funding for your startup from a variety of sources instead of individual investors at different times.

Related:How to Grow Your Business

FAQs about securing startup funds

Here are several common frequently asked questions about securing startup funds:

What’s the difference between an incubator and an accelerator?

Even though both incubators and accelerators support startups during their beginning phases, businesses that are already operating are more likely to use an accelerator to support continuous growth. With an accelerator, businesses work with investors and mentors to improve and develop, and these supporters help the business avoid problems during their growth period.

Businesses that are earlier in their startup stages can rely on incubator programs that help them refine ideas, develop their business plans, analyze their market fit and create networks. Incubators, therefore, are more focused on helping businesses get started during the planning phases, while accelerators help companies build on the planning they have already implemented.

What’s the difference between an angel network and an angel fund?

Angel networks organize and bring together individual private investors (the angels) and match them with startups seeking funding. An angel fund works by pooling the investment funds of two or more angel investors (either within a network or separately) into one single fund that they use to jointly invest in a single startup. Angel networks provide resources for entrepreneurs to find either individual angel investors or a larger, combined angel fund consisting of multiple investment streams.

What can I do if I think my startup will exceed my budget?

Sometimes unexpected business expenses can arise, resulting in the need to expand your startup budget. To avoid overextending your budget, you can seek external funding through the various investment opportunities as mentioned earlier. Similarly, plan a contingency budget to set aside an emergency fund in the event you need to cover additional expenses as they come up.

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