As an early-stage entrepreneur looking to take the next step, it’s crucial to be aware of big investment deals in your niche so that you can incorporate them into your pitch. They are now open to newer ideas and are willing to give an opportunity to entrepreneurs who have the capability of being catalysts of change in the entrepreneurial milieu.
In the present times, investors are not afraid to take risks and test new waters.
With startup funding becoming frequent breaking news in today’s constant announcements about startups getting funding, entrepreneurs might feel they missed the boat. But in reality, this is a blessing in disguise. A variety of funding options just provide a better and wider ground for entrepreneurs to find new ways of funding.
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If you’re an entrepreneur who is just starting out, it may take you about 4 to 6 months to fund your company. Investors can be of different types based on who has their own resources, capabilities, and inspiration. You can choose from a list of investors depending upon your preference, based on your strategy to establish and improve, capital requirement, and the size of your enterprise.
As a founder, you will also need to take a call on whether your startup has reached a suitable stage to raise funds or not. This is dependent on the present situation of your business and the outcomes you wish to achieve in the next 12-18 months.
Investors play a key role as one of the main players in the process of funding. Their expertise and involvement are determinants of a funded venture’s success. That’s why it is crucial for you to know everything about various types of investors so that you can understand who to choose and how to approach the right one.
Personal investors
Personal investors refer to your network of family, friends, and acquaintances who can provide an initial round of funding. This category of funders is relevant when you are at the beginning stage of your startup, covering feasibility test costs and experimenting with your brand. This type of funding can aid you up to a limited extent after which you need to factor in other sources.
Another aspect to consider while onboarding personal investors is the paperwork involved. We recommend that you take the help of a lawyer to walk you and your investors through the documentation.
Angel investors
Angel investors are one of the most well-known types of investors. They are high-net-worth individuals who offer funding in exchange for a share of the startup equity. They can be anyone from a wealthy friend, relative, or an acquaintance to a professional.
Angel investors, also known as business angels, private investors, or angel funders, look for a suitable match in an entrepreneur and their team, rather than just the business profitability. They could supplement funding support with their own industry expertise. There is immense potential in an entrepreneur-business angel relationship if it’s the right fit.
Angel investors offer flexible funding, whether it’s a one-time requirement or continuous support. We advise you to take the time to seek out a suitable funder who understands your brand, believes in it, and is willing to support you the way you need.
Venture capitalists
If an angel investor looks for entrepreneurs they can relate well with a venture capitalist who funds startups with long-term growth potential. VCs can be investment banks, wealthy funders, or other financial institutions. Individual funders who want to boost prospective successful businesses can find venture capital a suitable avenue. Like angel investors, venture capitalists can also offer strategic inputs and help sharpen your marketing, financing, and operational decisions.
The process of venture capital involves breaking up the equity of a business into ownership shares that are sold to investors, creating independent limited partnerships. Sometimes their partnerships are formed with multiple start-ups in the same field.
If you are in need of a large amount of capital, beyond what a personal or private investor may provide, a venture capitalist may be the right choice for you.
Others (Peer-to-peer lenders-)
Peer-to-peer lending is a means of direct lending where borrowers connect with those who have funds. Investors are motivated by interest rates higher compared to other investment options. Borrowers seek out P2P lending when financial institutions and other funding channels are not suitable.
Websites such as Faircent and Finzy facilitate P2P lending. The process involves an investor making a bid for a borrower’s loan requirements which the borrower can then choose to accept or reject. There is a maximum cap on how much can be lent through this mode.
1-to-1 lending cannot be more than Rs. 50,000 and a lender’s aggregate cannot be more than Rs. 50 lakhs across platforms. We recommend that thorough research of this regulated channel helps determine whether this is the appropriate source for you.
How to approach investors successfully
Once you initiate your journey to raise funds, you may find it to be a long procedure. It is likely that several investors you meet with may not finalize an agreement. This calls for patience, confidence, and consistency. The process can become much smoother and more efficient once a relationship with an agreement falls in place.
We hope these tips on approaching an investor will set you on the fast track toward your goal. It is important to keep these in mind for maximum impact.
Step-by-step guide on how to win investors
Make yourself visible on appropriate platforms
Work on building your startup’s brand and make sure you are high on visibility in the market. The answer to this lies in online marketing. You should use digital platforms like AngelList to keep prospective investors in the loop about your company’s products, services, and market presence. A well-crafted first impression will create an indelible impact and can put you in the spotlight. Crisp and precise communication around your vision, mission, goals, and values can pave inroads for future conversations with suitable investors.
Enlist the investors you wish to approach
Gather the names of your potential investors. If you are focused on one specific investor with whom you wish to meet and share your ideas, keep them on your list. Start approaching seasoned investors and keep filtering the names on the preferred investors’ list. You