Raising finance for your business

 Raising finance for your business

At every stage of its life cycle, any startup needs funding. No matter how big the idea is, its implementation requires certain resources, both financial and material. Thus, each startup thinks about how and where they can attract such resources.

So, let's look at what startups need and what steps they need to take to get it all. Before starting any action, any new business must decide what they need most for their development - money or help and support? Or all at once?

How to raise finance for your business?

Quite often, the initial capital is provided by the business itself or through crowdfunding. This is the initial stage of building a business and the initial capital is needed to fund the initial market research, prepare a business plan and create an MVP (Minimum Viable Product) or product prototype.

At this stage, it is most difficult to find investors for the business, since the initial investment is considered very risky. For this reason, business founders try to get the first investments at their own expense and start looking for investors when their business has taken a certain shape and there is already something to “show”.

However, if your own resources are insufficient and your business needs funding to get started, you should look for ways to attract investors for your startup.

Business angels or venture capital. What is the difference?

Most startups receive external funding from two main types of investors – angel investors and venture capitalists. Everyone has their own approach to financing a business, which means that you must correctly determine the type of financing for yourself, which will influence the choice of the right investor and your strategy for attracting him. So, what is the difference between them?

Business angels are basically people who invest their personal funds in support of startups that they consider promising. Their main interest lies not only in getting a return on their investment, but also in the desire to keep up with current trends and share their experience with young entrepreneurs. Some angel investors are simply passionate about the industry you are in and want to be a part of it. They are more willing to support the business at the very initial stages of its development.

Venture capitalists , in contrast, are companies and funds whose financial assets are owned by other corporations or funds. In other words, they are responsible to their partners for the money they are willing to invest in an idea, and this fact affects their approach to funding a startup. Venture capitalists are more likely to invest in businesses that have already shown some progress.

With all this in mind, we can highlight the following important differences between business angels and venture capital to keep in mind when looking for investors for your business:

• Since business angels manage their own funds, they usually offer smaller amounts than venture capitalists. If you are planning to attract angel investors for your startup, you should consider that their maximum investment will be in the range of $100,000 to $200,000. Amounts over a million you can only find with venture capitalists.
• The risk of angels is higher, so they require more profitability than venture capitalists, who face less risk of investing in more or less established companies.
• Business angels are ready to share their experience and connections, while they can stay away from the management of the company. On the contrary, venture capitalists demand their presence on the board of directors of the company and insist on very strict conditions that allow them to have more control.

As a result, before you approach potential investors with offers to support your business, we recommend that you determine what help you need, how much money you need, how much shares and control you are willing to transfer to your investors. Once you have made these calculations, you will have a general idea of ​​the type of investor you need to start your business.

How to attract investors to your business

1) Try to get more information about the potential investor first. Find out what projects he specializes in and whether he has invested in similar projects before. Obviously, some information will be classified and you will need to spend a lot of effort searching for it, but by coming to the meeting prepared, you will demonstrate that you are serious about this issue.

2) Be truthful in your request. When you approach an investor, clearly describe how much investment you need and for how long. Tell us about the real state of affairs and how far your startup has come. The investor must get an objective idea of ​​when his investment will start to generate income. Prepare a business plan to show your business from the inside, what goals you are going to achieve and in what time frame.

3) Prepare a little market research. Your goal is to convince the investor that your idea is useful , it solves a problem and there is a market for it. Therefore, before talking to investors, we recommend making a small investment in serious market research to lay the groundwork for your proposal.

4) Reach out to investors of your level. If your business is at the initial stage of development, do not seek investment support from global corporations. Individuals or small companies are more willing to take the risk of funding a small startup.

5) Be prepared to give the investor the opportunity to participate in the operation of your business. Most often, investors come with their connections, ideas, and even clients. But they can also request a partial stake in your business in exchange for their investment. So be open to these kinds of suggestions and have a flexible solution.

6) Show that you are serious about making your company a market leader. It is important for a future investor to see that you are rooting for your business. But do not forget that your passion must be supported by facts and figures.

7) Know your business thoroughly. You should be able to confidently answer any question about your startup, even if it falls outside the scope of your business plan.

8) Learn from mistakes. If your negotiations with the investor failed, analyze the mistakes that you made. Correct analysis and work on the mistakes will help you conduct the next meeting more effectively.

The steps listed above will help you get an investor on your side and secure both financial support and valuable input in the form of advice, exchanges of experience, useful connections, and even potential clients.

Expert advice on finding investors

In addition to the tips listed above, we decided to add recommendations from startup owners who have successfully attracted investments in their business.

1) You need to be creative to find the right investors - advises Jason Coles, founder and CEO of Katika. He discovered many sources of initial funding for his business:

• speaking at business meetings and exhibitions to get useful feedback and interest potential investors;
• Ask friends and family about the possibility of financing the initial stage of the development of your business. He was surprised by how actively family and friends offered their participation in the financing of his startup;
• Networks and online platforms: Coles suggests considering crowdfunding platforms such as Wefunder or Kickstarter. This is an easy way to let people know that they have the opportunity to invest in your project.

2) Finding investors for your business is all about finances and people who believe in you and your mission. “When it comes to attracting investors, you shouldn't just sit around and talk about money,” advises Thomas McGregor, CEO of Central Texas Strings.

He comes up with an idea he borrowed from a recruitment video: share six qualities of your business with a potential investor. Then ask them which three are the most important. This will help you understand investors' priorities and help them get to know your business better.

In addition, McGregor believes that it is important not to be in business all the time. “Be personable, be approachable… be humble,” he says. For example, after you speak at an event, stay at it and interact with the participants, but do not continue your pitch. Instead, ask investors personal questions about their families or their own businesses.

He also explains that savvy investors are quick to sense when someone is being dishonest and dishonest with them. He believes that if you act like you are more than you really are, they will understand this and begin to doubt why you need their money if you are already doing everything well.

“People put on a show every day,” McGregor says. "To cut through the noise, just be yourself".

3) “Give honest answers,” advises Chris Cera, CEO of Arcweb Technologies. “Sometimes you get into a scary situation where an investor bombards you with questions about the details of your business, and it makes you want to give the answer they want to hear, instead of giving an honest answer. ”

Build your own reputation. “When you build a reputation for yourself, it will be easier for you to open credit lines and communicate with investors on any of your projects, ” says Sera.

Help and Support

A young project may not require significant investments, or it may do without them at all. And what can be really useful to him are resources in the form of support. A young business may need office space, technical devices, access to high-speed internet, etc., and there are solutions for this too.

coworking

Coworking is a great solution for startups to start growing their business. They can significantly reduce the initial cost of starting a project . Coworking is a space that relieves start-up entrepreneurs from the headache of renting an office space, choosing office equipment, concluding an agreement with an Internet provider, and arranging premises for negotiations with potential clients and investors.

Business incubators

Unlike co-working spaces, business incubators offer not only the means and tools for doing business, but also a whole range of research, consulting and training services. There you can get advice on various areas of business management - financial, legal, intellectual property, human resources and much more.

Incubators can pair you with marketing experts to help you prepare your market research, management coaches to help you build a team for your business, and other professional coaches to teach you the best practices of today's business.

Another great advantage of business incubators is that they can connect you with potential investors for your startup or arrange a bank loan if that is your preferred strategy. Some business incubators operate only online, without providing co-working services and focusing instead on advice and assistance.

In fact, the purpose of business incubators can be seen directly from the name - to help developing companies "incubate" their business ideas, grow them into a prototype to attract investors, and generally support start-up businesses before they go on their own. Business incubators can sometimes be part of publicly funded government programs, while others are funded by venture capital or large corporations.

Business accelerators

They are one step ahead of business incubators, since this is where a startup can already receive some initial investment. At the same time, business accelerators have some entry barriers and conditions that a startup must meet in order to qualify for the initial investment:

• Accelerator programs are open to all applicants, however, not all receive them. For the most famous business accelerators, this threshold is 3%.
• Business accelerators are usually reluctant to accept individual candidates, preferring startup teams.
• Startups accepted into accelerator programs usually receive a small investment in exchange for some share in favor of the accelerator.
• Accelerator programs have a specific schedule, plan, and deadline. During the program, start-ups receive intensive advice, assistance and training, and by the end they should be able to present a demo product. Then the demo product is shown to businessmen, media representatives and potential investors to make a decision on further investment in a specific project.

Conclusion

The search for investors is a difficult path where no one is immune from failure. However, if you are well prepared and committed, you will be able to find a person or company to finance your project. Then your success when starting a business will be in your hands.