Where to look for an investor for a startup
Every third startup is launched with its own funds, according to the Startup Barometer 2021 study. But at different stages of life, founders have to attract third-party capital – from private non-core investors (in 48% of cases), venture funds, business angels. And the question of finding those who will invest in the project is acute for many entrepreneurs.
Gather the target base of investors and analyze
Before going through all the venture funds or investor contacts found on the Internet, study them in detail and select the appropriate ones. Attracting money is the same sales. You and your startup are a product or service that needs to be sold to a client: an investor acts in his role. Therefore, the first step is to collect the target base of investors. The process is divided into two stages. The first is to collect everything that is possible: funds, angels. The main thing is that they are active. And the second stage is to keep only those who definitely invest in companies like your startup.
Here, too, there are two key points: first, always evaluate at what stage the investor invests. You need to get to someone who is ready right now. Secondly, look for this person to invest in your topic. For example, there is too much difference between selling to individuals or businesses.
Then enter all the collected information into Excel or CRM and start working with it. Write, call, make an appointment. And carefully record the results of these communications. When you have more than 100 contacts a week, it’s hard to keep all the details in your head.
Remember responsibility and obligation
They promised the investor to send an update – send it, they promised to give some additional information on the project – give it. This will show you how ready you are to grow your business. If you can’t do something as simple as keeping promises, how can you effectively manage your investment money? Build a team? There is a high risk that you will regularly make mistakes here. Few investors want to invest in an unreliable startup with an optional founder.
Even if I know that a particular investor will not invest in me, but I promised something, I will do it. With every person you meet, you need to build the best possible relationship as possible. You never know how life will turn out: an investor may change focus (switch from b2c to b2b, for example), mood, or intuition will tell him that he needs to invest in you.
We still keep in touch with many people. They are constantly changing. One business angel opened his venture fund, and now he has a completely different focus, the second launched his own startup. You must always show that you are ready to build long-term relationships with people. This is important for the business as a whole.
Keep your investor up to date
I have seen a lot of stories when the relationship deteriorated due to the fact that the startup “scored” on the investor. The argument has always been this – he gave the money, I announced my obligations, the documents were signed, then it’s up to me to decide what to do, and I am not obliged to do anything. The end has always been sad. Because an investor is not a creditor bank that has provided money and is just waiting to be returned to him with interest at the appointed time. This is a living person who wants to know what is happening with the project in which he has invested, where he is heading.
You can, for example, send your investor reports twice a month, where there are project metrics, financial data and information about what has been done in the previous period.
Show willingness to listen and hear
The investor saw a lot of companies, a lot of data, and a lot of founders were presented to him by startups. Therefore, he is not just a source of money, but also a carrier of useful information. Yes, he may not be an expert in your field, but he is able to help you. One important piece of advice can turn the worldview around or lead to a promising idea.
It is also networking, an opportunity to reach out to other useful people. Many investors have hundreds and thousands of acquaintances. And any of them can be life-changing for a startup.
I met different opinions from the founders. Someone wants help and advice from investors, someone does not want any influence on their business, only money. My opinion is that you should always listen and then do as you see fit. But be sure to listen.
Take care of the specifics and argumentation in the pitch
If you mention any numbers, always be ready to back them up. The words “our market is 20 million customers and $13 billion annually” are just words until you confirm the numbers with an analytical report or your own calculations. An investor hears hundreds or even thousands of pitches every month, one way or another has an idea about the market and is able to roughly understand how true the statements of the next startup are. In addition, he is not inclined to instantly buy into beautiful numbers – this is a person who analyzes and studies everything. Show him that you, too, did not take it from the ceiling, showed it, but conducted research and are confident in your words.
Also, be as specific as possible in your statements and requests. Is your product better than others? Give a clear explanation of what exactly is better, by what indicators, from what it follows. For example, you can compare in numbers you and one of the market leaders: now this competitor is worth hundreds of millions of dollars, but your growth is faster in terms of revenue and customers.
If you need extra money for scaling, clearly show where and for what they will go.
A few months ago, a startup friend of mine, who is doing an educational project for a narrow target audience in Europe, could not find an investor. It turned out that all his figures were theoretical and strongly did not coincide with reality.
We found with him in open sources figures on the market and even on the cost of a paying client. As a result, the person adjusted his expectations for the round of investments, painted the economics of the project, made several marketing tests and changed the positioning of the project. Which helped him understand how to make a business out of it, and added clarity for investors. He ended up getting the money. All you had to do was count.