Startup Funding Tips
As a startup, you not only have to look for funding, but also decide whether a particular investor is a good fit for your company or not
Because once you’re in business with them, it’s almost impossible to get out without affecting your stake in your own company.
An investor is usually in your business for the long haul. Whether you raise funding from your friends or turn to someone with a lot of money, coming up with the money is often the easy part.
What happens after you get funding? Does your business continue seamlessly, or do things get harder?
In this article, we’ll give you 13 solid and realistic tips to ensure you not only get the right funding for your startup but also find the right investor for your business.
It All Starts With The Name!
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How To Find The Right Investor For Your Startup
There are a lot of steps you need to take to find the right investor for your startup. But the tip is to prepare yourself, find many options, and then sort them by certain characteristics that will help you choose.
With that in mind, here’s how to proceed;
1. Be Ready To Say No
Investors will definitely be interested in the growth and expansion of your business – after they have a stake in it. In the beginning, they’ll try to get the larger slice of the pie. And there’s nothing personal about that. That’s why you need to set clear boundaries on how much you’re willing to give up.
When networking or presenting your pitch deck, you’ll receive many offers that will try to push the limits you set. Potential investors might ask you to give up more equity or more control of the company.
You need to be able to say no and walk away. Because if you focus only on the money, you’ll eventually regret that decision. If the offer doesn’t match the amount of control, shares and equity you’re willing to give up, then this isn’t the right investor for you.
Who knows, you might get a better valuation or offer in the future.
Did You Know?
In 1997, Google founders proposed to Yahoo to acquire their company for $1 million. Yahoo declined and came back five years later with a $3 billion offer. As you can guess, Google said no. Today, Google is worth well over $150 billion.
2. Pitch To Accelerators And Incubator Programs
If you’re still in the idea stage and have limited resources, joining accelerator and incubator programs is a good move. First of all, they have all the resources to move your idea forward.
Not only do they provide capital, but they also offer you valuable business insights, advice, and even contacts to help you expand. Typically, they take a bootcamp approach. So for a few months, you’re constantly learning, scaling, and setting your business up for long-term growth.
When you participate in an accelerator, you can identify potential business risks right away and manage them effectively. You also build a network of other founders and have your community.
Did You Know?
Y Combinator is the biggest startup accelerator in the world based on successful exits.
3. Look For Venture Capitalists
Venture capital firms belong to a type of private equity. Usually, they consist of individual companies, investment banks, or even financial institutions. They not only finance start-up companies but also offer technical and management resources similar to accelerators.
Venture capitalists provide mentorships, contacts, and networking opportunities. If you have strong VC backing, you’re more likely to get additional rounds of investment easily.
Unfortunately, they usually require a higher equity contribution compared to other investors. If you don’t have a problem with that, it’s a great opportunity. Especially if you can’t get bank loans or otherwise raise funds. That’s because you don’t necessarily need cash flow to get backing.
Also, VCs tend to go after successful exits because they want to access their returns immediately. If that’s your plan as an entrepreneur too, then we recommend sending pitches to well-known VCs.
Did You Know?
75% of venture capital-backed companies never pay back their investors.
4. Pitch To Angel Investors
Angel investors are a group of individuals who’ve become wealthy through several ventures and now want to invest in emerging companies. In many cases, these angel investors are entrepreneurs.
The difference between them and VCs is that angel investors often want to see solid companies. They want to see a thorough business plan, revenue strategies, and a very high growth trajectory.
Since they’re entrepreneurs themselves, they want to invest in an industry that’s very similar to their own. So they’ve either worked in that industry or know it well. So they can make valuable contributions beyond funding and influence or predict the industry.
If you’re a high-growth entrepreneur who just needs a little push from investors, an angel investor may be a better choice for your business.
Not only do they bring the money you need to get things rolling, but they also bring a wealth of knowledge and influence that you could use. There’s also less pressure compared to the other investors we’ve already discussed.
Did You Know?
Most angel investors typically provide between $25,000 and $100,000 in funding.
5. Review Their Portfolio Of Companies
When looking for investors for your second round of funding, make sure you’re diverse in your selection. Look at their investment portfolio, as this can influence whether or not they’ll provide you with further funding in the future.
Let’s say you’re looking for a new investor for your cryptocurrency startup. If all of your previous investors have put a large portion of their investment into a similar startup that’s going under, you’ll have to bear the brunt.
Aside from the pressure to do well so you can recoup their losses, there’s a good chance you won’t get any more funding from them. So when looking for an investor for your startup, make sure they have a diversified portfolio. This will help you in the long run.
Did You Know?
Most investors have financial planners or accountants that help them make investment decisions.
6. Research The Right Investors For Your Funding Stage
Many entrepreneurs hear about investor types and immediately send out pitch decks wherever they are in their journeys.
VCs often give a lot of money, but they may not be right for your funding stage, especially if you want to expand and not sell. Even if you’ve already received a lot of money and are likely to get more, funding through VC wouldn’t be the right move.
If you only have a business idea, you may need to start with family and friends. After that, you should think about looking for an angel investor. With an angel investor, you can build your business to the point where you can participate in an accelerator program.
Ultimately, where you stand as a company will determine what kind of pitch decks and investors you should approach. That’s why we recommend you do extensive research before you send out your application or pitch deck.
Did You Know?
A funding valuation is a long-term assessment of how healthy the company’s finances are after shares are sold.
7. Review Your Prospective Investor’s Finances
One big mistake you can make as an entrepreneur is to assume that every investor has a lot of money. They may have enough to fund your business, but do they have other investments?
If you’re the only investment they have, there’s a good chance they’ll start micro-managing and affecting your business. That’s because they may have too much invested, so they always want to see all the details.
So make sure they’re doing well. Check their latest funding, how much they’ve invested, and other similar information. This is especially true if they’re angel investors.
Did You Know?
Crunchbase often records a company’s funding history along with investors for each round of funding.
8. Ensure They Have An Interest In Being The Lead Investor
Your lead investor will call the shots in further rounds of funding and stand in for other investors. In most cases, the lead investor brings other investors on board and assures them that they’re making a solid investment.
When you do your first round of funding, you usually need someone or some institution interested in being the lead investor. The reason for this is that they’ll be committed to the growth of your business and will be the liaison to the other investors. As we mentioned earlier, it’s also their job to attract other investors to your company.
So, quite simply, that means less work for you. If you find someone who’s not interested, you’ll have to keep looking for investors until a person or an institution agrees to take over the management of the business.
That’s why we recommend you find a lead investor first because that’s the most important thing for your business.
Did You Know?
Google Ventures was the most active lead investor in the U.S. in 2019.
9. Are They Easy To Work With?
Negotiations, operations, administrative functions, management, decision making, and more are areas that you often have to share with your investors. That’s why it’s important to find people you enjoy working with.
Aside from making sure meetings run smoothly, they can trust your judgment and make your job easier. However, if your board keeps making decisions that cost you your founding team and key talent, it’ll affect your company in the long run.
Ultimately, you should be able to conclude from your first encounters with them – the way they talk and negotiate with you – whether or not they’re easy to work with. However, if every encounter seems like a war, you should look for someone else.
Did You Know?
In a recent study, over 75% of founders admitted that they’ve had to work with arrogant and insufferable VCs in the past.
10. Ask If They’ve Ever Made A Repeat Investment Round
If you need another round of funding down the road, you shouldn’t have to find more investors. Let’s face it, they can be time-consuming and quite expensive. Plus, there’s the issue of having too many owners.
If you have an investor who can participate in multiple or repeated investment rounds for the same company, you don’t have to go through that. You’d have pretty much the same owners and wouldn’t have to worry about structural changes in your company.
So when choosing your investors, make sure they’re open to future rounds of funding if you need them.
11. Are They A Good Fit For Your Brand
Aside from your potential business growth, you should find out if your potential investors believe in your company’s mission and goals. Since they have a lot of brand decisions to make, are they a good fit for you?
Will they get on board and change your company’s branding? For example, they might ask you to change the name of your startup. It’s also about your company culture. Do they share the same values as you? You also need to know if they’ll give you the autonomy you need to do your work.
Is there a possibility that they might sabotage you as a business owner? Are they inclined to kick you out of the company so they can take it over completely?
The answers to these questions already tell you everything you need to know about the fit between your company and your investor. So look for potential investors who’re a good fit for your brand or who’ll help you move your story forward.
12. Find Investors Who Have A Solid Reputation With Other Investors
There are some people who naturally sell things. They have a way of making you believe that a product is perfect for you. Similar to what influencers do. The same goes for your investors. When you have a credible investor on your side, it’s easy for others to join in.
This is helpful for future funding rounds because they want a share of what your investor has. As company boards go beyond networking, others may see this as an opportunity to build a relationship – and therefore invest in your company.
To find out if your potential investor has this, check out their connections and interactions with other investors. You can also ask them about this in your preliminary interview.
Remember, as a brand, you always want to build trust, and getting a trustworthy person on your board is a good start.
Did You Know?
Most angel investors are members of clubs where they find early-stage companies.
13. Search For Industry Knowledge And Connections
In addition to influence with other investors, you need someone with influence in your industry. That way, they can bring additional resources to your business. A wealth of knowledge about regulations, pricing, trends, and other.
They also need to have the contacts for your business. For example, if you need to expand your marketing strategy, they should be able to recommend the right person for this. If you’re an expanding startup, maybe a sales agency can help you get things done.
Conclusion
The right investor for your startup should bring more to the table besides capital or startup funding. They should be able to work well with you, provide your resources to help your business thrive, and believe in your vision or company branding.
Author
Matija Kolaric
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