Attracting Investors

When a startup idea comes to your mind, you have to act fast. Sometimes, startuppers are so obsessed with the idea that they give up on thinking about investors. However, that’s a big mistake. Only 3% of startups last more than five years. Why do startups collapse so often? The reason is insufficient funding. In this post, you’ll learn how to find investors for your startup.

First Steps in Attracting Investors for Your Startup

The hardest challenge in raising money for a startup is to find the point to start with. The typical pattern of raising consists of rounds. In the picture below, you can see the steps of startup fundraising.

The first round is called seed round or seed capital. The sum that you have at the start of your project is called seed capital. If you have enough money for your project and you don’t want to attract side capital, you can proceed to bootstrap. Bootstrapping is an approach when the founder uses his own funds or the profit from the startup.

Now, about the series. Series A is about contacting investors for the first time and raising some funds from them. During series B, investors expect to see some significant results that can prove the viability of your product. Every subsequent series requires you to show even more significant results to investors. 

How to Choose a Fundraising Strategy?

There are several fundraising strategies that depend on the type of investors you’re working with. Besides, you can attract different types of investors to your project on different development stages. Here are the main types of fundraising options you have to know:

1. Angel Investor 

An Angel investor is the person who is ready to invest in your startup. These investors are prone to make high-risk investments, but usually, they don’t give much money. Session A is the best round to contact Angel investors. You can meet Angel investors during the conferences over the related niche or online.

2. Venture Capital 

Companies and funds provide startups with venture capital. How to attract venture capitalists? The best way is to have a personal appointment with investors or to be introduced to one of them on various meetups. There’s also an option to direct them directly. However, the majority of such attempts fail. Venture capitalists can express interest in your project if you already earn revenue. But it’s evident that if your project is in the planning stage, you’re less than empty for such companies, so it’s better to look for other options. 

3. Business Incubators 

Business incubators (BI) provide startups with seed capital. Besides, these establishments organize lectures and meetings with famous entrepreneurs for young and developing startuppers. How to find a business incubator? The top tier example is Ycombinator. This BI opened the doors for more than 800 companies. Airbnb, Reddit, Dropbox have been through Ycombinator. Twice a year, Ycombinator invests a decent amount of money into the selected startup. Then, they relocate this startup to Silicon Valley for three months. At the end of this term, startups are ready to show their developments to large investors. 

4. Crowdfunding

Crowdfunding allows startups to raise funds from ordinary people. Some platforms allow you to get funds free of charge while others oblige you to give your investors some bonuses. 

How to dive into crowdfunding? The most common case is online. GoFundMe is an organization that helps entrepreneurs to raise funds for their projects on a charity basis. Another famous platform is Kickstarter. However, it charges you a fee if you raise the necessary amount of money. Indiegogo has the most strict rules. You have to pay a 9% fee to be placed on this platform. Even if you raised nothing, you still lose your money. 

5. Initial Coin Offering 

ICO is a new trend in the world of investments. Entrepreneurs use ICO instead of the percentage in the company which you propose in exchange for funding. Entrepreneurs sell their cryptocurrency to investors. It seems easy on paper, but first, you have to create an ICO. It’s much easier to create tokens based on popular cryptocurrencies. 

There’s an enormous number of platforms for raising investments. But without regard to the option you choose, you have to be prepared for complicated questions from investors. Let’s learn how you can prepare before the meeting with investors. 

Steps to Take Before the Meeting With Investors

To impress investors, you have to show your competence, careful preparation, and an inner spark. This way, investors will see that you’re a person to build credible relations with. For the first steps, you need two main things. They are a prototype and a Pitch Deck.

Prototype

If you’re a software development startupper, you have to build a working prototype of your solution. Your project may be a complex thing, and it’s hard to explain everything in words. Moreover, some investors don’t have a solid technical background. That’s why an MVP version of your software will be a big tick on a meeting with investors. If there’s no prototype yet, you have to develop a design, at least. But make sure that it looks great. 

Pitch Deck

Pitch Deck is a presentation created for investors. It should describe your business plan, market research, and comprehensive information about your startup. Men of a very few words always impress investors, so be laconic, informative, and hit right on the target. 

READ ALSO: 8 Steps to Become a Successful Internet Entrepreneur

Pitfalls of Fundraising for Your Startup

Even with a perfect prototype and idea, stakeholders can refuse to invest in your project. Let’s explore the reasons why it can happen.

Obscure Niche 

A new market opens new possibilities, but you have to define your market and target audience precisely. You may be afraid of your rivals, but never let them ahead of you. Don’t be afraid of your idea, even if it’s big and covers a large field. 

Stolen Idea

Investors won’t support your startups if there’s a complete knockoff on the market. Copies can’t be successful. Only your unique idea that solves a concrete problem can become great. 

Inflexibility

Already at the planning stage, you have to think about the agility and scalability of your product. In the future, there may be a need to grow in the way your project needs or even completely change the scope of activities. Investors understand it, and they aren’t very supportive of inflexible projects. 

Bad Developers

Bad vendors can ruin every great idea. First, you have to decide on the type of team you need: in-house vs. outsourcing software development. Before hiring, analyze your potential vendor. Hiring a questionable freelancer to save some money may result in the collapse of a whole startup. Some services provide comments and reviews about software development companies. Clutch is one of the most popular among them. 

One Founder

Startups run by a single founder rarely get to the top. The reason lies in the nature of the founder, who doesn’t want to share his idea with others. This fact also shows low competence in teamwork. Such entrepreneurs are less flexible and often lack negotiation skills. Investors know these issues and respond accordingly.

Wrapping Up

Mind that fundraising is a long and labor-intensive process. Investors are very cautious about funding projects and have a lot of tricky questions in their arsenal. But these tips will significantly reduce the time you spend on fundraising.

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