Introduction

Finding the right investor for your innovative startup could be the difference between the success and failure of your business project. The first thing that you should have is a great business plan that has a promising idea able to convince the investor. Until the idea shows promise, it will be tough for anyone to put their hard-earned money to execute your idea.

The second thing you need to have is the correct fundraising strategy. Identify the type of your project and decide who would be most inclined to invest. And it is wrong to think only one or two investors should always invest in your company. You can attract various types of investors to your project on various development stages. Some of the options you might have are angel investor, crowdfunding, business incubators and the recently popular IPO.

However, there is one thing you should be aware of. Everytime you welcome investors to invest in your business, you are giving a portion of your authority and right to make independent decisions. To understand investors' concerns and striking a balance between the needs of both you and the investors is essential for the successful operation of the business. Then only a win-win situation can exist where your business and the investors can both make profits.

Concept of Attracting Investors

The conception stage involves you refining your budget and knowing how much investment you need and when you can start giving profits to your investors. Because the investors are there to multiply their money and you are their money-making machine. To look from their point of view, would they buy a machine that doesn’t look refined and sturdy? You know the answer.

When you invite investors to put in their money, you have one less thing to worry about. You can dedicate more time thinking, planning and executing those plans and making your business perform better.

The best strategy when it comes to attracting investors is to prepare an impeccable Pitch Deck. Pitch Deck is a presentation drafted for investors. A Pitch Deck should describe your business plan, market research, and in-depth information about your startup.

The Basics of Attracting Investors

Getting investments from investors, like most things, is a complicated process. However, there are a few basic things that you can do to boost your chances of getting the desired investments. Let’s have a look at what they are:

Knowledge of your startup: If you do not know your business idea inside-out and if you don’t come across as capable of running your business without the ongoing guidance of your backers, you’re not going to stand much of a chance of getting investors.

A well-defined niche: You have to define your market and target group(s) precisely. The better you know your target group the better you know their needs and that’s where you place your niche. Always remember to not be afraid of your idea, even though it’s big and covers a big horizon.

A convincing business plan: If your business is without the potential to make money, it is not a viable business. Ideally, you should be approaching investors with a business plan that has well worked out financials. You need to show that you can run your business without asking for a check from the investors once the investment is made.

Showing a competitive advantage: Having a large market is not sufficient, you also need to have a competitive advantage within that market that investors can see. If they see a potential of making millions from your idea you’d most likely get the investment.

A promising team: Having a good business idea is not enough, you also need a team that understands each other and can work with good communication and trust among them. You also need to convey this fact to the investors and make it a part of your pitch.

Advantages of Attracting Investors

In a digital world, you can have investors from all over the world. If your idea has strength, then a foreigner might be interested to invest as much as a local. You can reach them through social media, your website, and many such tools of digital marketing. Having the right investors comes with many advantages like:

No hassle of finding loans: If you find investors, you skip the cumbersome process of applying for loans from banks. It can often take a long time and that might risk your startup falling behind in the competition. Investors, especially angel investors, have the luxury of making quick decisions on such matters.

No need of personal assets: When applying for loans, the bank might ask for your assets like land for guarantee. If you don’t have assets, you might not get the loan and there is risk of your business idea going down the drain. Investors solve that problem too.

Investor’s Knowledge and Contacts: You don’t just get investors money but also their expertise and knowledge. They want your idea to be successful so they will be more likely helpful with conceptualization. Also, it is more likely they are also someone more established with more contacts in the market which might benefit your business.

More disciplined approach: Because you have the investors looking after your business’s performance, you have no choice but to be more disciplined in the operation of your business.

Mentoring from investors: Your investors are more likely to be more experienced and better at management skills. You can take advantage of those resources and get your business going.

Steps Involved in Attracting Investors

To a newcomer in business, finding investors can be a tricky thing to master. However, we have prepared a step-by-step short guide that will give you the direction and steps to follow in order to land the perfect investor for your startup.

Business Plan & Pitch: Your business plan should be the holy text for your business. Once prepared, you should adhere to it with all your heart. You should specify the financial investment your startup needs and the time it will take to give back profits. After the business plan is ready you should craft a pitch that is short but to the point. You should practice delivering the pitch in about 20 minutes because your investors are most likely busy people. You should also have a pitch that is about a minute long that you can orally explain at networking events.

Get Your Team Ready: Your investors are investing in your business, not just a plan. You have to have a team in place, have made progress toward idea validation and getting your business ready to work before you look for an investor.

Make Potential Investors’ List: Find investors who have already invested in other startups and small businesses that aren’t directly competitive with yours. Once you make the list, ask fellow entrepreneurs to review that list and ask if you should add or remove anyone from it.

Using Your Networks: Instead of looking for any investor who will get on a phone call or meet with you, it’s worthwhile to tap into your network to find those who might actually be a good fit for your startup and one who’d understand your business and be more resourceful to your startup than just investing money.

Be Realistic: You should avoid overestimating what your business is worth at all costs. It is one of the major deal-breakers that makes investors see your startup more like a scam. Base your startup’s value on realistic and measurable parameters.

Be Prepared For Rejection: You must understand that facing numerous rejection is an inevitable part of looking for an investor. Learning how to overcome a defeat plays an important part in your success. You need to roll with the punches and hit the ground running after being denied by a prospective investor.

Myths About Attracting Investors

Let’s bust some popular investor myths so we can get them out of the way. Some of it may seem disappointing, but they are based on reality. It is always better to deal with hard realities that you can work with rather than comforting myths you can’t.

Myth 1: Investors Have a Bunch Of Money to Throw Around

Although you will hear about such investors in fairy tales, it is next to impossible to find them in real life and willing to throw their money on your idea. On the contrary they might have higher expectations than you think.

Myth 2: Investors Can Take Big Risks

Spoiler alert, they don’t want to take big risks. But whatever small risk they are taking by investing in your business they will ask for its justification in return. So you better be prepared for it.

Myth 3: Investors Can Be Convinced If They Feel Only They Are Between Your Company and Success

It is the opposite, in fact. If they see that your company shows promise and might be a money-making machine for them and that the project will be successful with or without them, they will be more likely to invest.

Myth 4: Investors Will Regret Not Funding You

Most likely they will not. Because as an investor, you cannot sit down and feel regret. You must be always looking to identify the next big opportunity, like Facebook and Amazon were in the 2000s.

Impact Investing

To start with definition, impact investments are such investments that are made with a will to improve the socioeconomic and environmental status. So, an impact investor’s concern is deep rooted in both finance and welfare. For example, more job creation, better pay and upliftment of standard of living might be counted as socioeconomic factors and decreasing carbon footprint and plastic usage etc might be counted as environmental factors.

When an investor pulls in other investors to invest in an idea, it is called cluster attraction. It is believed that with cluster attraction the success of a business increases exponentially. If your startup idea revolves around improving socioeconomic and environmental status you might get investments from numerous agencies and foundations working in that field.

Dos and Don’ts of Getting Investors

To help with your approach as you think about your fundraising strategy, we have put together a small list of do's and don'ts when looking for investors.

The Dos:

Be confident about your business: As a founder, you should always be confident about your business and the promise of success it carries.You should believe in your ability to execute your plans. You should carry the vibe that you know something that people around you haven’t realised yet. It is a kind of quiet confidence that is the way to go about it.

Follow-up: No investor invests in the first meeting. Therefore it is important that you follow up with a thank you email and keep them updated on your progress. Maintain a good level of communication with the prospective investors. When you show them how you're evolving and build your track record over the time, they'll be that much more likely to invest.

Learning When to Stop Asking: Even when the investor rejects your proposal, don't be fazed and lose your confidence. You never know at which moment you'll run into the same person willing to work with you in future. So, it’s better to keep things cordial.

The Don’ts

Ask For Money in First Meeting: It makes you sound desperate and like someone who doesn’t believe in their idea. And investors also need time to study your business plan. It is not realistic to expect any investor to like your business in only one meeting.

Lie About Your Business: Although you might get the investment from them but over the period, the relationship based on lies cannot be sustainable and your business will suffer due to it.

Appear Disengaged: It is your idea that you want to turn into a thriving business and that’s why you should be the one most enthusiastic about it. Unless investors can see that enthusiasm, it will be hard to convince them.

Conclusion

If you follow the basics and avoid the pitfalls as we have mentioned you should be able to have some idea about what to do and what way to go about. Finding investors has more benefits and a few compromises. Mostly it is in favour of the startup and investor both.

The competition is getting tougher as the trend of entrepreneurship is on the rise and the investors are more or less limited. Keep building a network with fellow entrepreneurs and use it as a knowledge sharing platform where the community exists to help each other. Build interpersonal skills that come in handy with most business dealings. All of the aforementioned things combined can help you kickstart your startup idea and turn it into a successful business with your hard work and partnership with investors.