Who are they and how to get them interested?
At some point every startup founder asks themselves the question: how do I get the money to scale my business? A few opt to bootstrap or apply for grants, others seek investment from startup investors. These people or companies put capital into startups in exchange for a stake in the company or in anticipation of future returns.
Investors in startups are often more than just financial backers they can also become partners, mentors, connectors. Nor is every investor a good fit, or every startup investment ready. Knowing the variety of investors, what they seek and how to approach them can be the difference between a disappointment and a deal that sets your business on a path of growth.
Who Are Startup Investors?
There are different kinds of startup investors, each with different things to offer. These are the most common types:
Angel Investors
Angels typically get in early, at the idea or pre-revenue stage, and can also provide guidance or introductions in an industry.
Venture Capitalists (VCs)
Capitalists pool investment from several investors, then invest the accumulated money into a number of promising start-up companies. VCs typically step in once you’ve demonstrated some traction revenue, users or market validation. In exchange, they demand high returns and typically secure a seat on the board or influence significant decisions.
Corporate Investor
Big corporates can put money into start-ups whose businesses complement their own.
Some of these investments may be accompanied by strategic partnerships, access to distribution channels or guidance on scaling operations.
Accelerators and Incubators
Not traditional investors, these programs offer small sums of cash, mentorship, and resources in exchange for an equity stake in the startup. by Y Combinatoric, Tech stars and 500 Global are some of the prominent names being mentioned.
Friends and Family
These are casual investors, but they can be the first true believers in your business that allow you to gain traction.
What Do Investors Look For?
Investors bet big on start-ups, so they do their homework. Here are some of the main things they consider before cutting a check:
The Team
Investors frequently claim they are betting on people, not ideas. We tend to focus on the strength of the founding team: deep experience, grit, and vision.
Market Opportunity
How widespread is the problem you are solving? Startups with big, expanding markets get more attention because they have more room to grow.
Traction
Even small wins early adopters, pre-orders, beta users start to prove there’s demand.
Competitive Edge
What are the unique features of your product or service that are better? And whether it’s proprietary tech, a unique business model, or brand power, investors need to see a clear advantage.
Scalability
They seek businesses that can grow quickly without a commensurate increase in costs.
Where to Look for and How to Approach Startup Investors
The right investors are just as important to you as money.
Build a Pitch Deck
It should tell the story of your team, your product, your market, your traction, your business model, and your timeline and it should do so in 15 slides or less.
Use Warm Introduction
Investors get hundreds of cold emails. Being introduced by a mutual contact will greatly improve your odds of being heard.
Do Your Homework
Not every investor is a fit. Do your homework on their portfolio, preferred stage of company to focus on and industry focus before approaching.
Attend Startup Events
Such settings also afford an opportunity to practice your pitch.
Leverage Online Platforms
Platforms like AngelList, Seed Invest and LinkedIn can help you match with investors who have interest in your industry or stage.
After You Secure an Investor: What to Expect
Finally, once you have landed an investor, the relationship doesn’t stop with a wire transfer. Here’s the standard sequence:
Due Diligence: A more detailed look at your finances, legal structure and operations.
Post-Investment Support: Investors get in more than your average angel, giving advice, making intros and sometimes taking a board seat.
It is important to regularly keep investors updated and to treat them as strategic partners, not just sources of funding.
Final Thoughts
Start-up investors can provide more than just money they can supply counsel, credibility and introductions that can help accelerate your business’s growth.
But raising money isn’t only about pitching well; it’s about forming a real business that solves a real problem, shows traction, and exhibits potential.
Be selective about your investors, as they’re going to be on this journey with you for years to come. But focus on building real value and the right investors will come knocking.