There are countless startup ideas that never become companies, not because the ideas themselves aren’t good enough, but because creators behind them can’t get the funding they need. Finding investors is the first and therefore the most important step for starting any company and it informs all the business moves that come after it.
Before a company can embark on a quest to find investors, it needs to have a clear and actually executable business plan. That way there’s a framework with which the investors can work and it also proves that a startup is more than just a wage idea.
Create an investors list
The most obvious way to start is to prepare an investors list that is worth pursuing. The list should contain only the investors that are actually available and a plausible option for the business in question. It should be organized based on the likelihood of actually getting a positive response.
It’s also a good idea for the list to contain some info about the investors and a plan on how to approach them and present the investment opportunity in accordance with their goals and their needs. That way the list becomes a plan of action and not just a wish list.
Consider the personal network
Working with investors is a long-term business decision that can sometimes be limiting for the business owner. Some investors tend to get involved in the day to day tasks for organizing and running a business and even if they don’t there are a lot of obligations that come with working with someone’s money as a starting point.
This is why it might be useful to delve into a personal network of family, friends, and business acquaintances before getting into a deal with an outside investor. These deals are usually less strict and easier to organize, but they come with an added problem of mixing financial and personal decisions.
Everyone wants their business to grow and expand. However, when it does it can create numerous new problems for the owners and the management. This is something to be taken into consideration when discussing ideas with the potential investors.
If the plan is for the startup to expand, it might be a good idea for the employees to be included. By creating a clearly defined share option plan, you can help to attract and retain the best talent, ensuring you have the best team to drive success through this growth stage.
Banks and SBA loans
Banks are the simplest way of getting the funding to start a company and that’s the way most startups go about it. The biggest advantage comes from the predictability of the whole process including the rates and the payment timeframe.
A lot of businesses dread from getting tied in with the bank in any long-term even though the conditions are clearly defined. It is a long-term obligation that can often outlive the business itself and that can be a difficult burden to take on for a small startup creator.
Business incubators are of great value to small startups that need infrastructure and exposure. They are usually funded by a local governmental agency or by a private investor, but their main goal is to help out startup during the first couple of months or years of their existence.
The incubators usually don’t interfere with the day to day management tasks of the companies they are working with and there are two main ways to pay for their services. Sometimes there’s a fixed fee for using the incubator and most of the times, the incubator charges a percentage of the startup’s profits.
Let the investors come to you
In the end, investments can go the other way around. Sometimes the investors reach out to the startups on their own and look for the opportunity to get in on the ground floor. This is something, business owners should leave enough room for.
Part of it is to have a marketing campaign that’s oriented toward the industry. This is an additional expense for a small business that’s still in its infancy, but if it opens up opportunities it’s something you should try.
Startups depend on early investments to kicks start their work and to cover the initial expenses. It’s important to find a few different sources of funding in order to keep the company profitable and safe.
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Writer: David Webb
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