5 Steps to Find the Right Investors for Your Startup
Finding the right investors for a startup is difficult and a critical stage for any startup — even the smallest amounts of capital could prove to make a difference. These initial investors in the growth process of a startup will prove to have an impact that resounds for years to come, be it through capital, advice, or connections. Thus, knowing how important this stage is, here at VenturX, we have simplified the process into five of the most important steps to follow in order to find that perfect investor.
Invest in Yourself and Create a Cap Table
To begin, let’s start with personal finances: are you confident that your startup can be financially sufficient? If so, then the first step is to begin investing in yourself, or “bootstrapping.” Invest in yourself, your knowledge, and your health, and as Paul Clitheroe, founding director of InvestSMART says, “Your career is the engine of your wealth.” Many successful businessmen or businesswomen of today understand that enhancing one’s own skills and abilities are necessary to survive in an economy that is constantly changing.
Another key step before beginning to raise external capital is to plan a capitalization table. With reference to our article, “All You Need to Know About Capitalization Tables,” this is “a spreadsheet for an early stage venture or a start-up that lists all the company’s securities, their holders and the price paid by the investors to hold these securities.” Essentially, this will help in organizing what sort of equity stake — the percentage of the business owned by the owner of some shares of stock from that company — founders want to have. Visualizing a cap table will be crucial to show potential investors and stakeholders and their level of control over certain assets and can allow for them to forecast potential payouts and leverage control in the future. This will guide entrepreneurs and their startups to having a clearer vision of what they want from investors, a crucial detail when seeking investment.
Narrow the Investors You’re Interested In
“Investing is laying out money now to get more money back in the future.” — Warren Buffet
Essentially, investors also expect to get a return from their investment and knowing the different types of investors their differences can be crucial in making or breaking a pitch to someone.
During the researching process, it’ll become clear that investors also specialize in terms of what they invest in, whether it be a certain business model, an industry, or they have a specific demographic they want to cater to. For example, in our Spotlight Show featuring Keith Ippel, he provides some valuable advice.
“You need to equally discuss impact and your business model, your financial structure, and your revenue model.” — Keith Ippel, Canadian Impact Investor
Overall, it’s clear to see that, while it’s important to focus on “impact”, other factors should not be neglected in a pitch.
Within the startup community, there are two major types of investors to look out for: angel investors and venture capitalists. It’s crucial to know the differences between them and know what they’re looking for because after all, it could make or break a pitch. Angel investors are individuals who usually invest in early-stage startups and it is said that they reject 75% of the investment proposals they receive. This means that their approval is not one that is readily given, although if an idea manages to pass, it has a significantly higher chance of being successful. On the other hand, venture capitalists are employees of larger venture capital firms and, instead of investing their own money, they invest other people’s money in the form of a fund into companies. They usually invest a larger amount of money into startups, so it’s important to know if a company will scale substantially and quickly. Ultimately, it’s ideal to decide on if the target audience will be angel investors or venture capitalists —there are pros and cons to each, and it depends on what your investment strategy is.
Network Strategically and Innovatively
Now for the hard part: reaching out to these investors. The first thought that comes to peoples’ minds when they think about reaching out is usually by cold emailing or cold calling. These are effective ways and if one has enough perseverance and persistence, it could work out in their favour. However, it is a tedious method and there are other ways to network strategically as well. One possible way would be going on online platforms and pursuing connections through there. Some of the most popular ones include Angel Investment Network and AngelList. It’s through these platforms where you can get a better idea of how versatile some investors can be and where one can exhibit their startup to the world. Another way to show off a startup amid experienced investors would be by going to an industry conference or summit. It is here where you can build some lasting relationships with investors and gain advice and insight from their perspective or access to their own connections. In any case, the key is to nurture investor relationships, as there’s no such thing as a bad connection.
Be Specific with Your Pitch
This next point may seem obvious, but it’s one of the most important ones on this list. Before going to anyone about an idea, it’s paramount to be prepared, whether it’s through a pitch deck or a presentation. The best presenters are those who can make the other party feel special as well as earn their trust — it takes a considerable amount of effort to convince investors, as they look for hardworking individuals. It would also be valuable to research the investors’ existing portfolio companies; having this network in your roster can be a benefit in the future. The visuals are also as important as the content itself, so it’s best to invest in an aesthetic slide deck that will compliment a business proposal. As for the presentation itself, it goes without saying that it should be practiced and run through multiple times before the real deal. The key point of the entire presentation should be clear, as well as the questions it intends to answer: What problem is this solving? Why should this program be solved? Why is this the best solution? Lastly, in the end, make sure that the value proposition and the ask are clear as well, as these are the raisons d’être of the work a startup has done to prepare for this. Time is truly one of the most precious resources one can have, so as an entrepreneur, don’t waste your own time or that of your investors and be prepared.
Learn from Others
Last, but certainly not least, is to learn from as many other founders and investors you can. Raising capital is a daunting experience, especially for first-time entrepreneurs, and it can be extremely valuable to hear the opinions of those with more experience. Other founders can provide you with investors or advisors from their own networks which would help leverage one’s lack of experience. Additionally, when talking to investors, it can be incredibly enlightening to hear what they think of pitches and their “do’s and don’ts” when it comes to raising capital. On our Spotlight Show, you can gain access to the knowledge of many prominent investors who each adhere to a different industry and could possibly help.
Ultimately, picking investors that are critical to success is a timely process that needs a lot of care and delicacy. There are obviously so many other factors that will come into play when finding an investor for a startup, but these five steps would be the most important ones to consider:
1. Invest in Yourself and Create a Cap Table
2. Narrow the Investors You’re Interested In
3. Network Strategically and Innovatively
4. Be Specific with Your Pitch
5. Learn from Others
And remember, finding a good investor doesn’t always have the reward of capital being granted; in other instances, it can come in the form of experience and advice, something that can often be just as valuable.
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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.