Finding investors is easy.
What's not easy:
Finding the investors who are a perfect match for you and your startup.
It's not enough to jump into the lake and see which fish will bite.
You have to figure out what bait you want to use and what fish you want to catch.
And that's what I'm going to show you in this article.
Let's get started.
What are the Benefits of Fundraising for Your Startup?
Here are the 6 top benefits of finding and engaging with outside investors for your startup when you want to raise capital:
- Freedom to take risks:
Investors are more risk-friendly than banks, which have much stricter guidelines for giving you money (so they stay away from startup funding). - No debt:
Investments against equity ownership are non-debt cash injections, so you don't have to worry about repayment schedules and interest. - Network access:
Investors have valuable business networks of suppliers, clients, contractors and advisors that will help you get started and allow you to do in 6 months what takes others 3 years. - Help cover your costs:
Salaries, equipment, offices, etc. - Boost large-scale marketing campaigns to gain market share faster.
- Increase your startup's ambition to succeed at scale:
Business investors want to make a profit, so they will help you set high goals and stay focused on achieving them.
Important:
Not all benefits are the same for all startup founders.
Review this list again, select the 3 most important benefits for you, and write them down on 3 cards or scraps of paper.
Put the cards on your desk in the order of priority, with the most important benefit at the top.
Come back to this exercise tomorrow and test if you still feel the same about the priorities.
If not, move the cards / change the order.
How To Find Investors For Your Startup: The 7-Step Guide
In this article, you’ll learn everything you need to know about how to find investors for your startup.
1. Knowing Where You Stand: What Stage Are You At?
Ideation stage
The ideation stage is the first step towards building a successful startup.
It involves:
- identifying a problem, developing a solution, validating it, and
- building a motivated team.
During this stage, you’re focusing on your business concept and on really understanding your ideal customer:
Talk to them about the problem they’re facing, get feedback, and adapt your solution to their needs. Estimate the potential market size and revenue.
In short: Validate your idea, both practically and financially.
And don’t forget your own motivation and that of your co-founders.
Building a strong, motivated core team is just as much part of this stage as idea validation.
Some startups in the ideation stage already fundraise, but many manage this phase with their personal funds.
Once you have a validated idea and a motivated core team, you can move on to the next stages and seek pre-seed funding.
Pre-seed
Building on the ideation stage, pre-seed is marked by
- early traction,
- product development, and
- a clear understanding of your target audience.
If you’re zooming in on a specific customer base, establishing your product-market fit, testing prototypes, developing a clear path to revenue, and building out your team to cover all the main competencies, you’re in pre-seed.
Now, it's time to raise capital for the next steps.
Seed
The seed stage is characterized by having a product with some market fit, customers, and revenue. Key indicators that you're in the seed stage are that you have
- a clear business model,
- a growing customer base, and
- a team with specialized skills.
In the seed stage, you should focus on scaling your business, building a strong brand, and expanding your team. This is the time to seek out more funding from angel investors or venture capitalists to fuel your startup's growth.
Growth Stages (Series A, B, and C)
In the growth stage, your startup has more maturity and stability. Here are some factors which allow you to recognize that:
- Revenue Growth:You’ve got a consistent and sustainable revenue stream. It’s growing at a significant rate, indicating that your startup is gaining traction.
- Customer Acquisition:You have established a sustainable process for acquiring new customers, including effective marketing campaigns, a well-defined sales funnel, and a clear understanding of your target market.
- Customer Retention:You have a high rate of customer retention. Customers are returning to use your product or service on a regular basis.
- Positive Cash Flow:You’re aiming for positive cash flow. Revenues exceed expenses, ensuring your startup's financial stability and ability to reinvest in growth.
- Fast Scaling:You’re working towards rapid expansion by building a focused, well-functioning team, using automated processes, and leveraging technology.
- Strong Branding:You’ve built a strong brand identity that resonates with your target audience. You have a clear value proposition, a unique brand voice, and a recognizable logo and visual identity.
- Market Recognition:Your startup has begun to gain visibility within your industry and receives positive attention from customers, partners, and the media.
Each startup journey is unique, so not all of these points hold true for all startups, but they are a good guideline.
If you're hitting 5 or 6 out of these 7 points, you're well on your way into a growth phase.
Also, by this time you're usually dealing with multiple investors, so you've probably been through these steps on the road to securing investors before.
2. Investor Types: What Kind of Business Investors Do You Need?
Choosing the right prospective investors affects your chances of success.
So, let’s have a look at the six most common types of funding options you have and the advantages and disadvantages of each.
The best choice of funding depends on the stage of your startup.
Friends and Family
Friends and family are a common type of investor for early stage startups.
They're often the first people that entrepreneurs turn to when they need funding (and so much easier to than applying for a bank loan).
Advantage:
The main advantage of seeking funding from friends and family is that they are likely to invest based on their belief in you and your business idea rather than financial returns.
Disadvantage:
The disadvantage is that friends and family investments can strain personal relationships if your business venture fails.
So if you can find small business grants or bank loans, they might be a better first option.
Angel Investors
Angel investors are high-net-worth individuals who invest their own money in startups.
They come with various degrees of experience and networks.
The best way to find angel investors is via startup accelerators or angel investment groups.
Angel investors typically invest in early-stage startups with the potential for high growth and significant returns.
Advantages:
They provide more significant funding than friends and family, and they often have valuable industry experience and connections that can help your startup grow.
Disadvantages:
They often request a significant amount of equity in the company, which dilutes the founders’ ownership.
So when you approach angel investors, knowing how to successfully negotiate for giving away less equity is a key skill any business owner needs to develop.
Venture Capital Firms
Venture capital firms are professionals who invest in early-stage startups with a high growth potential.
They are the pros of startup funding.
(Not to be confused with private equity firms, which invest in mature companies and don't fund startups.)
They work in teams and have more tried-and-tested investment theses than a typical angel investor.
You can expect a venture capitalist to have experience and a large support network, whereas the angel investor may or may not (it's hit and miss).
Advantages:
A venture capital investment usually involves larger sums of money than investments from angel investors or friends and family.
Venture capitalists provide valuable mentorship and guidance to help your business venture grow and give you access to networks and industry experts.
Disadvantages:
Venture capitalists demand a substantial equity stake in your startup and have high expectations for returns.
Also, the typical venture capitalist makes investment decisions based on more rigid profiles, policies, and a more detailed due diligence.
Many of these conditions are prescribed by their venture capital firms -- a.k.a. venture funds or vc firms -- which means that individual investors working there may not have as much room to negotiate as angel investors (or as friends and family).
Family Offices
Family offices are private wealth management and investment firms that manage the financial affairs of wealthy families.
They invest in startups as a way to diversify their investment portfolios. (They may run a private equity firm or department, too - unlike a venture capital firm, which won't mix the two.)
Unlike venture capitalists, most family offices are not startup funding experts.
They may use external or employed consultants to help them make sense of venture capital investments, or they may "fly blind" (similar to a less experienced angel investor).
Advantages:
They offer “patient” capital:
They’re in less of a rush to make a return than angels and VCs.
They can provide access to a vast network of resources and vast wealth - the "friends and family" funds of the wealthy.
Disadvantages:
They may have limited experience in the startup ecosystem.
Also, they are often guided by internal considerations that may or may not align with your startup's needs.
So, if you go with a family office, get to know them well before you commit.
Small Business Loans
Small business loans are a common funding option for startups.
They are typically offered by banks, credit unions, and the Small Business Administration (SBA).
Advantages:
A traditional business loan offers a predictable repayment schedule and can be used to finance various startup business needs.
Disadvantages:
A small business loan often requires collateral and has strict lending criteria, making it challenging for startups to qualify.
That's why traditional bank loans often aren't the way to go.
A Word About Crowdfunding
Crowdfunding is a relatively new funding option that has become popular in recent years.
It involves raising small amounts of money from a large number of people through online platforms such as Kickstarter and Indiegogo.
One advantage:
A crowdfunding platform allows startups to test their business idea and generate interest before launching.
Disadvantages:
Using a crowdfunding platform requires an intense marketing effort to generate interest, and there is no guarantee of success.
That’s why I have not yet suggested crowdfunding to any of the startups and small businesses I have trained and mentored.
The exception might be small businesses in the creative industries like film, games, or music.
If that’s not you, be careful about not pumping 99% of your workload capacity into marketing a crowdfunding effort.
Focus on other ways of finding business investors instead.
3. Where to Start Looking for Potential Investors
Define Your Perfect Investor
Research investors with a track record of investing in startups in your industry and at your stage.
Consider their investment philosophy, portfolio companies, and their network.
Develop a "perfect investor persona" and judge them against that ideal.
As mentioned, fundraising is a numbers game, so cast your net wide but target the right investors to increase your chances of not only securing the funding but building long-term profitable partnerships.
Use search tools to create a "long list"
Platforms like
- LinkedIn,
- Crunchbase,
- AngelList,
- PitchBook,
- US Investment Network,
- Investor Hunt,
- Crowdcreate,
- Mattermark,
- CB Insights,
- Pipedrive, and
- Insightly
can provide valuable insights into private investors' preferences, funding stage, industry focus, and available funds.
Choose 1 or 2 search tools - using them all is overkill.
But using 1 or 2 will massively increase your chances of finding the perfect investors for your startup's fundraising journey and tailor your approach to accredited investors who align with your business goals and values.
The shortlist: Prioritize which investors you’d like to meet with
Once you have a long list of potential investors, it's time to prioritize.
Set your prioritization criteria, such as:
- values and impact ideals,
- industry focus,
- investment stage preferences,
- geographic location
- etc.
Then, decide which individual investors you want to spend time with first.
You can also prioritize finding investors based on their level of interest and engagement with your startup business.
Keep track of your progress using a CRM tool, and stay up to date on your potential investors' portfolios.
Use your personal networks!
Reach out to your network and ask for referrals.
You never know who knows who - at a third-level connection, your six best friends are connected with thousands of people.
So ask them to ask their friends.
Direct recommendations are probably the most underrated and underused weapon in a startup founder's network-building arsenal.
Get investors interested in reaching out to you
Imagine you were an early-stage startup investor.
What are you looking for? Great startups. Great investment opportunities.
Are you just sitting around waiting for them to come to you? No.
Why?
Because you know that once they come to you, they'll knock on everyone's door.
So you actually have an advantage if YOU go looking for THEM.
And that's what good investors generally do.
You want to give them an opportunity to find you, right?
So here's how:
Go to conferences, do podcast interviews, write a blog, get on social media, and write guest articles in expert online magazines.
Again, use your personal and social media networks to find opportunities, and select one or two main channels you want to be active in.
Otherwise, it'll strain your workload capacities.
Make it a habit - do it once or twice a week (whatever channel you're on).
A regular presence in your channel (and yes, that can be "conferences," too) will get you noticed.
Keep it up, even if you're still in the ideation stage.
Show that you're a thought leader, an innovator, and pique people's interest.
Before you know it, a potential investor will contact you.
(This may or may not be the investor you'll want to work with, but don't underestimate the value of this avenue!)
4. Know If You're Ready: What Do Investors Look For?
Before you start contacting the potential investors on your list, check these points to see if you're really ready for all their questions and info requests.
Your business plan:
This is your strategic roadmap outlining the purpose, goals, and sustainable practices of your startup company, with a strong emphasis on creating positive change.
It explains your mission, value proposition, revenue model, and who your target market is.
It also includes a clear go-to-market strategy, your financial plan, a competitive analysis, and growth projections.
Proof of concept:
Accredited investors want to know that your product or service can succeed in the market.
Proof of concept means you have validated your idea.
This could be:
- a prototype,
- pilot tests,
- customer feedback, or
- early sales data.
It provides investors with confidence in the startup's ability to deliver.
Building a strong core team:
Investors want you to succeed.
For that, they want to see a talented and committed core team.
- A team that demonstrates the capability to execute the business plan effectively.
- A strong team with a diverse skill set.
- A team that can weather the storm of the first three to five years without falling apart.
Forming a Board of Advisors:
As a business owner developing a new product or service, it's easy to get tunnel vision.
Investors know that.
They also know:
If you go down the wrong tunnel, your startup will fail.
And there goes the investor's money. They don't want that.
So accredited investors see it as a sign of real "readiness" if you have a dedicated board of advisors consisting of experienced professionals who can provide valuable guidance, and perhaps "pull you out of your tunnel" when necessary.
And who also have their own networks that will help and support your startup, by introducing a business partner or helping you build an important business relationship.
In short: Having a respected board of advisors signals credibility and durability.
5. How to Contact Professional Investors
Cold outreach email
Crafting a compelling cold outreach email is an effective way to introduce your startup company to potential investors.
To increase the chances of getting a response, do this:
- Personalize the email: Tailor the message to each investor, highlighting why their investment aligns with their previous investments or interests.
- Clearly communicate the value proposition: Describe the problem your startup business solves and how it differentiates from competitors.
- Be concise and direct: Keep the email short and to the point, focusing on key highlights and achievements.
- Request a meeting: Close the email by expressing interest in discussing the opportunity further.
LinkedIn and other social media networks
LinkedIn is a powerful tool for connecting with private investors, meaning mainly angel investors, venture capitalists, and family offices.
For me, it's the #1 platform.
Whatever platform you use, you should do this:
- Optimize your profile:
Ensure the profile is up-to-date, highlighting the startup's achievements, mission, and goals. - Engage with investors:
Interact with investors' posts, share relevant industry insights, and initiate conversations. - Join relevant groups:
Participate in industry-specific groups to network with investors who share similar interests.
Startup Events, Conferences, and Trade Shows
Attend startup events and pitch competitions where you can network with potential investors. Here's how to make the most of these events:
- Prepare an elevator pitch: Craft a concise and compelling pitch that highlights the startup's unique value proposition.
- Network wisely: Identify key investors attending the event and approach them directly. Plan what you will say (or ask).
- Use smart conversational techniques: Questions are better starters than a grand self-intro. "Hi, I'm Ben. I overheard you talking about xxx, and I was wondering: ..." is my favorite starter.
- Follow up: After the event, send personalized follow-up emails or LinkedIn messages to nurture the newly established connections.
Personal recommendations
Leveraging personal recommendations can significantly increase the chances of grabbing investor attention, so use them:
- Tap into your existing network:
Reach out to mentors, advisors, or industry experts who may be able to make introductions to potential investors. - Build relationships:
After attending network events (see above), nurture your relationships with the people you met.
Choose 3 people from the event who you enjoyed talking to, whether it's because they were insightful, because they asked great questions, or because it just "clicked".
Meet them within a week or two, if possible. - Trust your gut:
"I choose my business partners as if they were personal favorite distant cousins."
That was the most valuable advice I got working in sales in Tokyo from the head of a marketing empire.
"Trust your gut," she said, and she focuses on 2 key components: - Good vibes matter:
The first key component here is the phrase "personal favorite": Don't try to partner up with people who give you a weird vibe.
Instead, connect with people your gut says are good for you. Successful people enjoy what they do. So should you! - Think long-term:
The second key component is family ("distant cousins"): Whoever you decide to connect with, your most empowering network will be the one you maintain for decades. Like family. But the family you choose. So choose wisely.
6. Stop Wasting Time: Know What You Want From an Investor
Some inexperienced founders think that fundraising is just a transaction.
That once you know how much funding you need, it's just a matter of getting someone to "show you the money."
But there's more to it than just knowing how much funding you need.
Dumb money
If you just want money for your startup business, you can disregard over half of this article's advice.
Just get loads of wealthy contacts, hit them hard with how amazingly your startup will scale, trigger their greed, and get them to give you as much money as you can for very little equity or none at all.
But maybe that's not you?
Smart money
If you want a real impact investor, who will support you, guide you, and connect you to their business networks, then select your investor carefully and build a strong relationship.
And when you make your ask, it will include all the extras.
It may mean giving away more equity, but that's usually worth it, especially in the early stages.
How much money for how much time?
Know how much money you need and how long your runway will be with that money:
How long will this investment sustain you before you need to ask for more?
This depends on your cost structure, and during the early stages, investors advise startups to keep their costs down because lower costs mean a longer runway with the same amount of money.
Equity and valuations
Know how much equity you're willing to give away and what you consider an appropriate valuation.
Understand the difference between pre-money and post-money valuation (they'll hit you with that, don't let it confuse you).
5 Types of Contracts
There are 5 basic types of agreements (plus hybrid forms), and you need to know which type you prefer and why.
Some involve selling parts of your ownership. Some don't.
This is one of the key decisions you need to make.
Equity Investment:
Equity financing involves selling shares or ownership stakes in your company in exchange for venture capital.
Your investors become shareholders, owning private equity. They share in the company's profits and losses.
Debt-Based Investment:
Debt-based investments, such as loans or convertible notes, involve providing capital to the startup in exchange for repayment with interest.
They don't grant ownership rights to the investors but rather create a debt obligation.
Convertible Notes:
Convertible notes are a debt instrument that converts into equity under specified conditions, mostly during a future financing round.
Convertible notes allow startups to secure initial funding quickly without fixing their valuation.
Simple Agreement for Future Equity (SAFE):
SAFEs allow investors to provide capital to startups in exchange for the right to acquire equity in a future financing round.
Usually during a priced equity round or a liquidity event (a.k.a. "exit").
SAFEs offer flexibility: they allow the valuation to be determined in the next financing round.
Dividends, Royalties and Revenue-Sharing Agreements:
Some investors provide capital in exchange for a percentage of the startup's revenue or profit until a predetermined return on investment (ROI) is achieved.
Obviously, this only works if your startup has an established revenue stream and a clear path to profitability.
7. Prepare Your Pitch to Shine (Not to Tick Boxes)
Not your boxes ("I think all these facts are important")
Don't overload your investor with data just because you know it.
Their role is not to grasp your specific expertise on your level.
And your role isn't to drill all the details of how you do what you do into them.
Tech experts and scientists often make the mistake of thinking that investors find the tech or science as fascinating as they do.
But investors want the 30,000-foot perspective on the science or the tech, not the details.
Not their boxes ("I need to fulfill their criteria completely").
Inexperienced founders go into a pitch with a template:
“I have to show the need, the market size, the biz model, the financials, the quality of the team, our gtm, the product-to-market fit, the growth potential, how we’ll scale, etc.”
And you do. You must be completely on top of all that.
But here’s the problem:
Some founders think they’ll be fine if they tick all the boxes.
But that’s what 99% of startups do.
Founders who think that’s all they need to do just prove how un-innovative they really are.
How to shine
Let's assume you burn for what you do.
But why?
What excites you about your startup, and how does that align with your investors' values and motivations?
Find that shared mass, and go in with those highlights first.
Try this:
- List up all the success factors on your "un-innovative" checklist – you do have to know them all, so list 'em up.
- Pick the top 5 success factors and start testing them with friends, mentors, industry professionals, and potential clients – get their feedback and prioritize further.
- Make a final “top 3” prioritization of the factors where your startup stands out like crazy.
These are your highlights. Learn how to present them with the passion that drives you.
Use them in the beginning of your presentation to hook your investor into the unique adventure of what a future with your startup will look and feel like.
Startup founders who do this extremely well are those who have got to know the investor, have researched them, and build relationships with the intent of nurturing them long-term.