Every successful startup has to begin somewhere. For most people covering launch costs themselves is not a possibility. Outside investment is an absolute essential.
But where can it be obtained? There’s a number of different ways to secure investment. Whether it’s angel investors, accelerators, incubators, crowdfunding or otherwise- there’s plenty of opportunities to get your company up and running.
Let’s take a look at each category individually and some tips for securing investment from them.
An angel investor is an affluent person who provides capital for a business startup, usually in exchange for convertible debt or ownership equity.
Get to know potential investors
Getting to know the market is essential before you start seeking funds. Do your research about every angel who may take interest in your business. When it comes to meeting them you’ll be knowledgeable about their careers and other business interests. Analyse what company USPs you think will appeal to them, remember that first impressions are everything!
Create a budget
Before investing in your company, your angel will want to know where their money is going. You should be able to present them with a budget that explains clearly where it will be spent and what areas you intend to distribute it across. Make sure it’s accurate and realistic, not an idealised version of the truth.
Strong management team
You might be the smartest entrepreneur an investor has ever met, but unless you have the right people behind you- you can leave your chances of investment at the door! By the time that your attempts at investment come around, you need to have a strong management team on your side. Let them know who are the key leaders and discuss their experience and education. Prepare an idea of how investment will help each one perform their duties and the salary levels they can expect.
Use social media
Angel investors should be able to look at your Twitter or LinkedIn page and see the efforts you have put into branding. They should be able to ascertain your values and vision from content posted on your page. If utilised correctly, it could be the difference between an investor choosing to back you or not. A well branded page with a big following would look great for an investor and boost their own personal brand.
Good communication is another absolute necessity! Firstly, in order to pitch your business. Practice your speech until it comes naturally, but make sure you don’t sound too rehearsed- the investor needs to hear your passion. Express the ‘big problem’ your startup solves and show why your market opportunity is large. Communication with the investor outside of meetings is important too- reply to them as fast as possible and don’t leave them hanging!
Appoint a solicitor
Sometimes a lawyer or solicitor can be a great help when making agreements with angel investors. Investment documents can often be very technical, so much so that they require a lawyer to understand them. Particularly when ownership of companies is in question, it’s best to be deal with it as professionally as possible. This prevents problems from arising further down the line regarding corporate structure or place of incorporation.
Work on an exit strategy that your angel investor will agree upon. This is how the company shares will go once you’ve built a successful business, which will allow the funder to reap returns on the deal. Usually they want to specify a set time frame before transferring any funds. Once the date arrives, the options are for the stock to go to Initial Public Stock Offering (IPO), a sale or merger company.
Accelerators and Incubators
Startup accelerators (seed accelerators) are fixed-term programs that include investment, connections, mentorship, educational components, and culminate in a public pitch event or demo day to accelerate growth. The difference between them and incubators is that the latter are government-funded
Be open to mentorship
Everyone likes to think they know it all, but when you’re taking part in an accelerator programme, you must bear in mind that you can learn a lot from the mentorship aspect. Typically, it takes startups about 3 months to ‘graduate’ from an accelerator. During this time all staff are offered intensive training.
Accelerators are privately funded and usually hosted in the provider’s office. These tend to be big companies, for instance Disney and Rocketspace. It’s important to make sure their office is in a convenient location for all members of staff. The longer their commute, the lower their morale will be!
In this new office space, you’ll be surrounded by a whole new assortment of people, all with different skills and jobs. It’s a brilliant opportunity to network with those that you may not have met otherwise. They may be interested in remaining part of your business in years to come.
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Crowdfunding is a form of crowdsourcing and alternative finance.
A successful crowdfunding campaign takes a lot of preparation. It takes a team of social media experts and an effective well crafted message to go viral and reach the necessary volume of people. The brand’s message needs to be clear and focused, with emphasis upon how you plan to change the world.
A team of big brands need to be reeled in too, they must agree to participate and help you to promote. Delve into your network and reach out to anyone who could help spread your content. Ensure you have a consistent brand across all platforms and a set target audience in mind.
Compared to the others, this one is most time and energy consuming. Only 30-40% of crowdfunders see success, and they’re undoubtedly the ones who put every available minute into the campaign.
Existing schemes and loans
Every country has their own assortment of government schemes in place for SMEs. These can help start ups along the way and get them to a place where they’re able to function themselves. Alternatively, self funding could be a last resort option. Loans from banks or credit unions might provide adequate levels of funding, depending on how much is needed. This option is particularly attractive if the financial institution allows you to repay over a long time period.