Smart Investments That Can Grow Your Startup

Raising money for a startup is the main challenge startups face. Banks are unwilling to fund small businesses that lack evidence of consistent cash flow, have no collateral, and insufficient operating history.

But investors fill the gap by financing startups with the expectation of making high returns in the future. Though it’s a high risk given that half of the startups do not survive past the fifth year, the returns are worth it.

How Do Startup Investors Make Money?

Investors provide funds to startups in exchange for shares in the company. They commit the money with the hope that the business will reach high profitability.

Once the business is up and making profits, they can resell it to the owners at a significantly higher price than the money they invested in the company, making profits.

If the company happens to go public, the shares are likely to be worth more than the amount used to fund the business. And the investor will make profits from trading.

What Do Investors Look For When Investing In A Startup?

The number of applications investors receive for startup funding is always more than they can handle, and they have to be smart when making a choice.

Here are a few things they are keen about.

A Concrete Business Plan

A well-defined business plan shows the investor that you understand the market and have a plan to meet your goals and achieve growth. Ensure that you have a realistic revenue model.

Passion

Investors are looking for entrepreneurs who believe in what they are selling. They want founders who are confident that their product will solve a need in the market.

Growth Potential

Investors need the assurance that your business is capable of providing returns for their money. They will look at the potential for growth in your market and your capability to accommodate it.

Traction

Show your potential investor that your business is up and progressing. It will be indicated by customer testimonials and a measurable number of sales.

The Team

The people you are working with have a large part to play in the success or failure of your business. Investors want to see that you have experts working with you, who share in your passion for succeeding.

How To Find Smart Investments That Can Grow Your Startup

Here are some excellent sources of investments to take your startup to the next level.

1. Angel Investors

These are high net worth individuals or groups who fund startups in their early stages using personal or pooled funds. They provide financial backing in exchange for equity or convertible debt. They mostly consist of friends and relatives.

An angel investor will help your business take its first steps. Their conditions are favorable too. Their focus is more on growing the business and not making profits.

If you cannot find an angel investor in your circle of friends or relatives, get online and do extensive research. Use websites such as the Angel Capital Association and Gust.

Get creative on your term sheet, help the investor see the bigger picture, and establish a relationship based on trust.

2. Venture Capital Funding

Venture capitalists, unlike angel investors, are in for the profit. They only invest in startups with the potential for high profitability.

Venture capital involves a group of professional investors with money from sources such as a pension. They will invest large amounts of money in your business in exchange for equity.

Their intention is to help your business grow. Venture capitalists will have a say in how you run the business. They will introduce you to potential customers and provide strategic assistance. Once the business is more established, they will sell the shares back to you at a higher price, making profits. Or make an initial public offering.

Ensure you have a pitch that stands out. It should be short, catchy, and straight to the point. You should be able to summarize your business in one or two lines.

3. Crowdfunding

Crowdfunding is where you raise funds from a number of minor investors, usually online through crowdfunding platforms or social media. They will fund your business in exchange for equity, rewards, or first-run products.

The best part about crowdfunding platforms like Kickstarter is that you get access to already interested investors. It saves you both time and money. You get to create a fundraising campaign and promote it through social media and emails to attract more investors.

However, there are some fees involved when using crowdfunding platforms. They charge a credit card processing fee, and a percentage of the funds you raise will go to the website owners. Ensure that you put these amounts into consideration when planning your campaign, so that you don’t end up with less money than you need.

Crowdfunding platforms provide an excellent opportunity to know what is missing in your business idea. As potential investors ask questions, you can gain insights on how to refine your business concept.

4. Startup Accelerator Programs

Startup accelerators have helped many startups take their first steps and grow into profitable giants such as Airbnb.

Accelerator programs are organized by established entities, universities, and investment firms. They involve weeks or months of boot camps where budding entrepreneurs are trained and guided by highly regarded entrepreneurs.

It is a great platform to not just learn from the best, but to meet industry mentors and network with other founders.

The program includes a Demo Day, where entrepreneurs make a presentation to an audience of investors. A great presentation will attract funding in return for equity.

5. Networking

Networking is also one way to find investors for your business. Friends, family, and acquaintances can help you get reliable leads.

Find fellow entrepreneurs in your industry who have found investors and ask them for referrals. Use social media such as LinkedIn and Facebook groups to connect with people in your industry and seek recommendations. Secure yourself within your industry networks and get active.

Attend events in your industry and meet as many people as you can. However, your conversations should not become all center around getting funds. Ask for advice and make expert contributions where you can.

Focus first on building strong relationships with people in your industry and members of your community. And they will naturally help you with finding investors.

A loan rejection from your bank does not mean your entrepreneurial dream has to come to an end. Startup investors will fund your business in exchange for shares. You just have to prove your business is worth the risk.

Explore sources such as accelerator programs and crowdfunding platforms. Reach out to venture capital firms. And network widely to find angel investors.

About the Author:

Frank Stovall is an avid traveler, rock climber, and adventurer. As the active public relations manager for Fly Xo where one can book a flight on private jets in an instant, he is able to travel far and wide with Joshua Tree National Park being one of his favorite recent destinations.Frank Stovall is an avid traveler, rock climber, and adventurer. As the active public relations manager for Fly Xo where one can book a flight on private jets in an instant, he is able to travel far and wide with Joshua Tree National Park being one of his favorite recent destinations.