Over two-thirds of startups never deliver positive returns to their investors. For your startup to succeed, you need a great idea that fulfills a need in your industry as well as the right investors to provide the necessary funds and strategic support. Here is a quick guide to finding the right investors for your business.
The Different Types of Investors Available by Company Stage
There are many funding opportunities for startups. You should go for a mix of funding opportunities that will ensure you can access diverse and multiple capital streams. Here are the investments options available:
New businesses usually start as an idea. The founder, at this stage, is still tinkering with and developing the business concept. At this stage, founders can either use their personal finances or the resources of close connections.
- Bootstrapping – Raising capital during the Idea Stage can be difficult, so in this stage, the founder should consider providing the startup capital.
- Friends and Family – At the Idea Stage, many entrepreneurs get the financial backing of their friends and family.
In the Pre-Seed Stage, entrepreneurs need more funds to sustain growth as well as perform certain undertakings such as market validation. At this point, you may need to explore new external funding options, including:
- Crowdfunding – With crowdfunding, you can use platforms like LinkedIn, Facebook, GoFundMe, and Kickstarter to pitch your ideas or products to people worldwide. Crowdfunding enables you to get funding from anyone without you having to relinquish any equity.
- Incubators/ Accelerators – Pre-Seed Stage businesses that are promising can apply to accelerators or incubators to get multiple benefits, including business mentorship, strong industry connections, an excellent work environment, as well as seed funding if your venture is very promising.
- Angel Investment – Angel investors are individuals who are willing to inject capital into your business. Because they are not private firms, they tend to offer a smaller amount of capital, usually between $25,000 and $100,000.
At this stage, the business has started acquiring customers. So the biggest challenge is carving out a market share. At this stage, entrepreneurs have to raise funds through Series A Funding which can generate from $1M to 30M from investment firms.
- Venture Capitalists – These are private sector investors who get a pool of funds from pension funds, foundations, and corporations to invest in fast-growing businesses in exchange for equity.
- Venture Debt – This type of funding is essentially a loan that your business will repay regardless of whether your business is profitable.
- SBA Microloans and Microlenders – The SBA is a government entity that helps link business owners to private lenders who can provide up to $50,000 in loans. Business owners can also get loans averaging $13,000 from microlending nonprofits.
At this stage, the business has an established sales model. An Early Stage funding round is referred to as Series B and can generate from $1M to $30M in capital from:
- Super Angel Investors – These investors are a blend of venture capitalists and traditional angel investors. They usually offer $250,000 to $500,000 in investment.
- Revenue-Based Financing – A business receives capital in exchange for giving the investor a fixed part of the business’s future revenue.
At this point, the entrepreneur is looking to add infrastructure and expand operations. This Series C round of funding can generate over $10 million in capital from:
- Private Equity
- Bank Loans
How Should You Properly Prepare Your Pitch?
You should outline the exact amount of capital you need and your expected ROI. Additionally, you should clearly show how you’ll attain success and establish performance milestones.
How to Know the Type of Investors You Want for Your Startup?
You should be clear on the kind of relationship you want with your investors before you accept any capital injection.