6 Ways You Can Find Investments for Your Startup
| 5 minutes read
Every entrepreneur dreams of doing something big and revolutionary, but limited funding is the barrier where most entrepreneurs do not surpass the situation. But don’t let money stop you from following your dreams. If you’re planning to start your own business, but don’t have enough funds, don’t worry; there are still many options you can choose from.
Starting a small business is always exciting. And at the initial stage, if you don’t find the investors, don’t fret, instead think, most successful companies in the world were at one point where you’re now today. Of course, if you’re an entrepreneur, just thinking will not help you get your job done.
After analysis and research, we found a few but effective sources from where you can expect investment. Are you intrigued? Well, we are here to share some tips about where you can find the necessary investment for your startup. Kindly read till the end to understand the whole concept in detail.
Here are our top 6 ways to find investors for your small business:
- Self-funded, if you have any
- Ask Friends and Family
- Angel Investors
- Small Business Administration Loan
The first and foremost thing is self- funding. If you’re an entrepreneur, the first thing you can expect is funding from your side. See, we are not telling you to fund in millions, but to help you get by. This is the first investment you should do as an entrepreneur because you’re the only one who can detect and have the overall knowledge about how much investment you need for your business. Therefore, investment from your side is like putting the first brick in your business foundation. Invest as much as possible for you.
2. Ask Friends and Family
This might be the easiest and most cost-effective way of raising money for your startup.
Talk to your family and friends about your business plan and its requirements. You need to make it clear if you want a loan from them or if you want investment funds. A loan may be the easiest for both parties in certain situations – you just pay it back over time, with interest.
An investment means family or friends would hold a stake in your startup and share equal risks with you. However, with an investment, you might be able to get excess money upfront, and unlike a loan, you will not be paying it back in installments. Investors will only get money if your business becomes profitable. But don’t be informal or casual the way you generally approach your family members or friends. Do a proper pitch and let them know when they can expect to make their money back. If they’re investors, explain the risks openly.
Caution- In a case of business loss, it has been observed that some ups and downs in relation occur; therefore, it’s better to explain the whole business plan by covering both profit and risk scenarios.
3. Angel Investors
An angel investor has the money, resources, and strong financial background to make a company successful. If an angel investor comes on board, he is likely to invest enough to barely any other investors required. They invest high in your business. However, angel investors always expect a high return on their investment. And they won’t invest in just anything until and unless a powerful pitch doesn’t come from your side – the business case has to be airtight.
Angel investors invest their capital in a startup, especially when the business is just beginning. An angel’s investment will mean his shares in the company. Companies like Amazon and Apple both got their start by aligning with angel investors.
They may simply like your plan, trust your goals and vision, and believe that your business will be successful. That’s why you need to be able to articulate your business plan well. A short meeting over coffee with an angel investor might be all it takes to secure a fund for your startup.
There are online resources available to find angel investors, such as the Angel Capital Association. The association lists angels by state.
4. Try Crowdfunding
A crowdfunding platform allows an individual or business to acquire funds online through a website specializing in a particular type of funding needed. Let’s look at some of the different types of crowdfunding platforms:
This is where contributors are asked for relatively lesser amounts of money in return for some startup reward.
Let’s give an example- John’s Drones is a startup company looking for funds for his new product, a drone with Artificial Intelligence technology. Each investor who pledges $600 will get a free drone when the product launches 15 months from now (at a retail value of $900). But those who promised $750 get the drone, two extra batteries, and an extended warranty.
This is also one of the ideal ways to raise funds because the business’s “at cost” charge to send each investor the product upon release will likely be a lot less than $600. All the investor is getting, predicting the business is successful, is a great deal.
Kickstarter is one of the examples of reward-based crowdfunding platforms.
You probably already know after reading the title what we’re going to talk about. But as usual, we had promised you that we are there with you, and we will support in finding the key to success for your startups. So, here it goes. In this platform, the money is generated from donation-based crowdfunding.
It is usually for a project, for instance, to donate money to individuals or families suffering from some loss, or for a community that has educational, medical, or emergency needs. Money for a charity also generates much-needed dollars through donation-based crowdfunding.
GoFundMe is an example of a donation-based crowdfunding company.
This type of crowdfunding is where investors take some part of ownership in the company, typically through shares. Although their overall investment is not paid back, they will receive a share of the profits if they do well.
The amounts invested are not small. Typically, they start in the thousands. Sometimes, the rewards can also be much greater than an investment, but equity-based crowdfunding is also riskier because there is no guarantee on return. Companies don’t pay out dividends or interest in the initial days, and there are fewer legal protections. OurCrowd is one of the examples of an equity-based crowdfunding platform.
5. Venture Capitalists (VCs)
Venture capitalists are needed when a business is growing and perhaps heading into a riskier venture. Venture capitalists do not use their own money, but that of investors (additionally, they set up a fund used for others to buy shares in the company).
Although venture capitalists can help a startup, they typically come into a business once it’s already been recognized. It has a solid and effective management team in place and has already proven to be successful.
The amounts required of venture capitalists are much higher than that of angel investors, and it can be in the millions. But the return on investment will also be projected to be very high. Like angel investors, venture capitalists will own shares in the company and say how it’s run.
6. Small Business Administration Loan
The Small Business Administration is a United States government agency designed to help small businesses. It was established in 1953.
Although the agency does not loan out itself, it has a lender match tool on its website to help businesses find lenders that the administration has already approved. The SBA will also guarantee certain loans, meaning substantial repayment terms and lower interest rates. On its website, it has a few tools for entrepreneurs to plan, launch, and grow their businesses and free online courses, and links to local assistance.
We have now covered how and in what ways you can find investment for your startup now; we would also like to cover, How to Encourage Investors to Invest in Your Startup? Kindly read the blog; this will give you complete information about investor expectations and policies before they invest in a startup.