Software development sometimes can be costly. First of all, you need to have a profitable and detailed business plan for your startup and to know exactly how much funding you need. The next and probably the most challenging step is to find investors that work for you.
Finding investors for a startup means identifying individuals or organizations willing to provide funding in exchange for equity, convertible debt, or repayment, so your business can grow. Trying to get people to support your business can be tricky. Your main goal should be finding a quality investor within your industry whose expertise could take your business to the next level and multiply your chances to succeed on the market. This is an essential task, since a large share of startups fail to survive past their first few years, and only a small fraction remain operational after the fifth year.
That’s why it’s so necessary for you as a startupper to find a reliable and steady source of funding before you’re able to sustain the business on your own.
Here are some tips and tricks that could help you find the right people who will be willing to invest their money in your business.
Ways to Find Investors for Your Startup
- Angel Investors
- Venture Capitalists
- Crowdfunding
- Bank Loans
- Accelerator Programs
Angel investors are individuals who invest their own money in startups in exchange for convertible debt or ownership equity. Usually, these investors are experienced entrepreneurs whose primary motive is to make money. Despite this, they have a serious interest in your company's growth in the industry and will want to learn all the details of your business plan.
You can find Angel investors at various conferences and meetings connected with the industry your startup works in.
Main advantages: Getting money from Angel investors is less risky than, for example, taking a loan from a bank. You do not need to return the money if your company fails. Most Angel investors know the business very well and can offer a lot of valuable advice.
Disadvantages: Angel investors will need to have some control over your startup and can tell you how exactly to run the business.
Services for finding Angel investors: Angellist, Gust.
One more way to get funds for your startup is from venture capitalists. If you succeed in receiving help from such companies, you will have to return the money and bring them a profit. Venture companies like to invest in small or middle-sized, reliable startups.
Main advantages: You can expect venture capitalists to play an active role in the fast growth of your startup. VCs can provide you with an experienced specialist in your sphere who will help you with your business.
Disadvantages: VCs can give you money in exchange for stock in the company. The negotiation process with venture companies takes a lot of time, and sometimes you will need to hire an attorney to assist with it. You can lose control over your company, as VCs usually demand voting rights, access to all information connected with your company's activity, board seats, etc.
Crowdfunding is one of the most popular ways to raise capital. It means collecting money for your business through small donations — as little as $10, $50, or $100 — from a large number of people, typically via online platforms.
Main advantages: Crowdfunding is one of the safest and fastest options for receiving money for your startup. It gives you the possibility to find out how people react to your idea and to identify the potential customers of your product.
Disadvantages: It is tough to get onto crowdfunding platforms. If your idea fails, it could damage your reputation. Before presenting your business, you must protect it with a patent or copyright.
Crowdfunding platforms: GoFundMe, Kickstarter, CircleUp, LendingClub.
Getting a bank loan is one of the possible ways to finance your startup. Banks typically offer lower interest rates for business startups. The main requirement for receiving the money is a good credit rating. Sometimes the bank may require you to sign a personal guarantee when you apply for a loan.
Main advantages: Unlike the previous options for finding an investor for your startup, banks don’t need to have a share in your company. This means that you won’t lose control over your business. Using money from a bank means you only need to repay the principal and interest amount on the loan.
Disadvantages: For startups with no assets, the loan approval process can be difficult. If you borrow money from a bank, you have to make periodic payments without delay.
Accelerator programs help early-stage startups gain access to potential investors and industry experts, and receive guidance from experienced mentors. Business accelerators can also provide access to technical and logistical resources. These programs usually last from two to six months.
Main advantages: You will receive valuable support and advice from people who can evaluate your business idea and needs objectively. Experienced mentors will teach you how to build a successful and sustainable business and open new opportunities for you.
Disadvantages: There is usually a fee for participating in accelerator programs.
Examples of accelerator programs: YCombinator, Techstars, 500 Startups, Startupbootcamp.
Conclusion
There are many ways to find investors for your startup. But remember that it’s also important to save money by using every possibility that can help your business succeed faster.
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