There is a very popular phrase that ‘Wheels don’t run without oil’ and it holds very true for start-ups. Without money or the frequently used term, funding, the start-ups just cannot compete in the market.
Consider this; you want to design a website for your business? You will need money. You want to get office supplies and business cards? You will need money for it. In a nutshell, you can have the most inspirational business plan for start-ups, a great will to succeed, mind-blowing products and services to transform an industry but how are you going to bring it to life?
This is where investors come to play. They are the ones who will provide the money to help you kick start your start-up journey. Not just this, through networking circle, they can introduce you to their partners and peers who can become your potential customers and help you bring in early revenues.
So, if you are a start-up all set into step in the world of entrepreneurship, you must know who your investors are and what you should know before approaching investors for funding,
TYPES OF INVESTORS…
There are different types of investors for start-ups and it is important for you, as a start-up, to know three things.
- How to approach
- Who to approach
- Why approach
- When to approach
Keep these things in your mind because choosing the right investor, at the right time, and the right way is of supreme importance.
Once you know who to pitch, it all comes down to perfecting the pitch deck. Do check our professional tips for the pitch deck which will help learn more about pitching the right way!
Without much ado, let’s discuss the type of investors.
FRIENDS AND FAMILY AS INVESTORS:
We all have friends and family who we trust blindly and they do so too! Therefore, the first investors, that you as an entrepreneur or a founder should approach are your friends, family, and personal contacts. Most founders and entrepreneurs with new company business plan tend to avoid this investment opportunity.
However, you will be surprised to know friends and family invest the most money in start-ups! Yes, over $60BB per year.
Friends and family trust you. They know you. They would also know about your passion and potential to excel in whatever you are doing so they are a good set of investors for the beginning.
However, when it comes to business it is good to have a thing in black and white. So it is best that both the parties sign a partnership agreement and set terms and conditions accordingly!
ACCELERATORS:
We like to call accelerators the gateway to success! Yes.
Accelerators are a growth hub designed by non-profit organizations and sometimes private foundations to support early start-ups through education, mentorship, and sometimes via financing. You being part of the accelerator program as a start-up, can receive intensive training, rapid education, and learning that many start-ups take years to get!
Imagine receiving $10,000 to $120,000 for your start-up just by learning and networking!
Another advantage of the accelerator program is networking. As many start-ups make way to these programs, they get to network, befriend people, and approach investors that help them unlock the next level of start-up funding!
You only have to hustle hard!
ANGEL INVESTORS
In the beginning, we all start small, and with the right support, be it financial or moral, one can get big in no time.
The name speaks for itself, angel investors come as an angel for the founders with a new start-up business plan. This investor, a high-worth individual, and a successful entrepreneur invest his time and money both into a venture that has the potential to produce promising results in return for stocks in the company.
For angel investors, investments are ‘passion projects’ says Matt Gira, founder of FounderCo.org. Let’s be real, start-ups in the beginning years lack credibility and recognition. No one likes investing in a ship that has chances of sinking but an angel investor does so because of PASSION!
According to Forbes, the investment range of angel investors start from $25,000 and goes up to $100,000 and higher
So, if you are pumped up not to just get funding but also to gain access to valuable insights from their experience to make your start-up flourish, then angel investors are the right fit for you.
The interest they will show in the growth of your start-up by sometimes mentoring your team, introducing you to investors, and helping identify problem areas, will help you, a lot!
VENTURE CAPITALIST:
Remember when we said that you need to know how and when to approach an investor? Because of Venture Capitalists (VCs)!
VCs include big companies with money from institutional investors, pension funds and insurance companies, shareholders, and at times individuals who have deep pockets than the angel investors. They are on the look-out to invest in a business or a start-up that will make their pocket grow deeper and give high ROI.
One thing to keep in mind is that VCs, besides their rigorous criteria, in exchange for investing millions of dollars in your business demand partial ownership, share in the company, and at times a say in managerial affairs of your start-up or business.
So unless your start-up has started to grow and has a proven record of success to help them increase their returns, only then approach VCs because they are not easy to convince.
They look at your pitch deck for a FEW minutes, sometimes just on the phone, and decide if they want to fund the new start-up business plan or not. So, we recommend making your pitch deck visually eye-catchy and jam-packed with value so that the investor decides that it’s YOU and your start-up getting the funding!
BANKS:
Once your start-up is established and has gained traction, only then approaching banks as your potential investors make sense.
Banks rarely provide funds to early-start-ups unless there is a relation between the two parties or there is a scheme going on offering credit facilities to the start-ups. The cheque is definitely big at banks but the demands to get to that cheque are bigger.
The bank may ask for a presentation for business proposal including a detailed business plan, a description of business prospects, and growth projections. We wouldn’t recommend approaching banks to new start-ups but we would definitely motivate you to work for it.
Now that you know your investors how about we discuss a few things to keep in mind before approaching an investor for start-up funding?
THINGS TO KEEP IN MIND BEFORE APPROACHING THE INVESTORS:
Do you know that on average a new start-up has less than one per cent chance of sealing the deal around an investor? This means something acutely wrong is happening.
You can save yourself from being part of the stats above by:
Building and belonging to a team – investors after the business idea care the most about the team that is going to make it a success. Work with your team and evaluate how together you can take the start-up to where you have promised the investor.
Design a dazzling pitch – investors like VCs, Banks, Angel investors don’t have all day to give to your new start-up business plan. They want a pitch that speaks to them within seconds else you are out of the game.
Know your ‘phase’ – Avoid committing the mistake of approaching an investor with a presentation for a business proposal when your start-up is in the budding phase and not ready for it. Always remember haste makes waste. Take your time and develop.
FINAL THOUGHTS….
As evident from the information provided here, we hope you are now aware of the types of investors available for funding start-ups. Some of them fit the early stages of the start-ups whereas some are for the times when the start-up is in full-swing to becoming the talk of the town!
No matter what kind of investor you are approaching but approaching the right investor with the right pitch is vital. You know that we cannot approach the investors for you but hey! Pitch Deck Edge can design a pitch deck for you that will not just make you stand out but will help you strike a deal for your start-up!
Contact us now and let us do the talking!
