How to make your startup infallible?
With only 10% of startups surviving the race, it is imperative to understand the gravity of things around them and be cognizant of the elements that make a sustainable startup.
Being a startup owner, you have come to know of various factors that go into making a successful business. Your ideas, the marketing plan, the vision, and of course the investors; all of which are integral to forming a strong foundation for your business. If you have the right knowledge to raise funds and attract investors, you could have a hiccup-free ride towards your financial goals.
We shall be learning about the various types of investors that could ensure a grander success for your company. We will also be learning about the following aspects in this post:
- Different Types of Investors Defined by Company Stage
- How and Where to Find Investors for a Startup?
- Preparing Your Pitch
Different Stages of Development of a Startup
In the inception stage of your startup, you could feel lost amongst the various investment opportunities present before you. Crowdfunding, family & friends, bootstrapping - which one to choose, you may think!
However, it is important to consider the stage your startup is at, as some options weigh heavier and may prove better than the rest. Your company will be experiencing various developmental stages throughout its journey, so we recommend you to have a mixed bag of investment streams. As a result, you could work well with your startup's different levels of fund requirements.
There could be different types of investors your startup may need at its growing stages:
As the startup is still in the development stage, the entrepreneur will need funds to create a detailed business plan and refine the concept. Early on, funds are typically raised by personal finances or close relationships.
Entrepreneurs need additional funds at this stage to maintain sustainable growth. There are various other essential tasks such as market analysis for which the startup may need funds. In addition, entrepreneurs can turn to external funding sources while still taking advantage of Idea Stage funding options.
A company's Seed Stage marks the point in its development where its preliminary preparations are completed. This is the stage that depicts the beginning of sales and customer acquisition. Entrepreneurs must determine ways of sustaining success and establishing a foothold in the market.
Series A raises funding between $1M - $30M at this stage. This implies that the company should now shift towards investment firms rather than individual investors.
Here, we see the implementation of a scalable sales model which can generate revenue consistently for the company. This is the point that requires the entrepreneur to keep up with the demand for products or services and work towards further expansion.
To achieve all this, the business will require sufficient funding. In other words, it will require Series B funding. This type of funding includes later-stage venture capitalists and super angel investors. A Series B funding round ranges from $1M to $30M, just like Series A funding rounds.
Having achieved several startup milestones, a company is deemed to be in the Growth Stage. Their goal is to grow at an even faster rate. This can include expenditures for new facilities and expansion of business operations.
Private equity firms and banks are among the funding options for entrepreneurs at this stage which could also be included under the Series C. The Series C round of funding seeks at least $10 million in the capital.
Where and How to Find Investors for a Startup?
After completing your homework meticulously, now it is time for you to start looking for investors. However, as discussed in the previous section, there are various stages that a startup passes through. Certainly, there will be a corresponding type of investor that they would want to generate funds from.
We will present 10 different ways in which you can find the right kind of investor for your business. Here we go:
Launchpads for startups
There are companies that provide information, research, and assistance with launching a business, including ways to connect with investors. These companies could provide a convenient method of locating potential investors efficiently.
You can also visit crowdfunding websites that will open doors to contacting various investors. These are the people looking for new and unique ideas to invest in. You can approach them through social media platforms. It is important to note that each crowdfunding site is different and offers different incentives to investors. Examine them all carefully to determine which one best meets your strategic objectives.
All you have to do is pitch your business plan or the product honestly and effectively to allow the interested people to contribute to your growing company. With an efficient and clear approach, crowdfunding may get you donations to the tune of millions, as has happened to many companies in the past!
You can find an angel investor who will invest in your start-up and provide mentorship. To access contacts of the regional angel investors around you, you may go through the directories that have listed names and numbers of the investors.
Incubators and Accelerators
Just like newborn babies need extra care and nourishment to grow healthier, your newly-developed startup, too, needs the initial funding to kickstart the business process. A majority of these investors tend to take on a larger role to help turn your idea into a profitable business, along with providing the necessary funding. Working directly with you in these incubators and accelerators is possible, as they offer a physical space to set up your office.
Professional Social Networks
With the advent of professional networking websites like LinkedIn, we have witnessed the ease with which one could establish connections and look for the right partners and investors. Websites like these are an excellent ground to breed meaningful and effective solutions for your startup. Companies are on the lookout for a great idea that exhibits enough potential to sustain itself in the corporate world.
Small Business Administrations
Despite the economic downturn in recent years, traditional funding sources such as the Small Business Administration remain a good option for small businesses. Their main focus is on small business loans and grants. If that's what your requirement is, you can have them with no expectation of compensation or of obtaining a part in your company.
Private Equity Firms
Private equity firms have been around for a while and are, therefore, considered one among the traditional ways of investor funding. These firms usually offer financial support ranging from thousands to millions based on the growth prospects. Their goal is to sell their stake a few years after investment to reap substantial profits from their investment.
Personal Marketing Effort
Apart from the options mentioned in this post, you could also make yourself visible to let the investors approach you. This implies that you need to put yourself on a platform that lets the investors notice you and listen to your ideas. For accomplishing this, you can place your company’s vision on one of the affluent and impactful social media websites including personal blogs, through conversations on Quora, and so on.
Online Lending Platforms
Since banks are now severely limiting start-up loans, new solutions have emerged through online lending platforms. A peer-to-peer platform, a nontraditional lending source, and some large investors are some examples under this category that are looking to help small businesses. They make a profit from the lending terms. You can look for credible investors to contribute to your startup and help expand.
Friends and Family
You are likely to have loved ones around you, in your social circle, like your family and friends who are genuinely supportive of your idea and would like to see a successful outcome from your business. However, when you receive funds from them, ensure that you keep your personal and professional relationships separate. This could be done by drafting an agreement that enlists the risks, prospects, important figures, and statistics relevant to the document and the process. This is done to eliminate complications and lose your friends in the process.
Preparing Your Pitch
You have set up your startup and have located the investors. BUT, What’s in it for them? It all boils down to this question.
Now that you know where and how to find your investors, it is time to work on your startup pitch. The pitch is all that makes the difference as it helps you make inroads deeper into the markets. You can let your investors know why your idea is a good one, why it will work, and why they should be investing in it. Here are some simple steps to take when you are drafting your pitch for the startup:
- Keeping the pitch simple and uncomplicated
- Tell your story (how and when you conceptualized the idea)
- Let them know you are focused
- Convey your product’s USP
- Demonstrate your product or service
- Define your target audience
- Always carry support/evidence of your claims
- Exhibit enthusiasm all the way
Passionate and Professional! That’s what your startup pitch needs to have. You certainly have to possess the expertise and hands-on experience to demonstrate the excellence of your product or services.
Rest shall follow!
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After having incepted your own small business, you are now looking to take things forward and smoothly, too. So, there are some extremely crucial elements that play a pivotal role in the way your company shapes up going forward.
- Apart from a strong marketing plan and impeccable products or services, you also need the financial support from your investors
- There are different stages that your company will pass through, which include the Idea stage, pre-seed stage, seed stage, early stage, growth stage
- Crowdfunding websites, angel networks, professional networking websites, online lending firms are some of the platforms where you can find investors
- Friends and family can also be a great source of monetary help in the initial stages, but it is advised to keep legal things separate from personal ones (to avoid bitterness in friendships later on)