How to find investors for a new start-up business
By Indeed Editorial Team
Published 13 July 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Most start-up businesses require financial investment to support their long-term development and success. The founder of the company can work to find investors and so can employees in other positions. It might seem challenging to approach potential investors and convince them to support the business but knowing where to look for investors and how to network with them can make the process more straightforward. In this article, we discuss how to find investors for a new start-up business and helpful tips for talking to potential investors.
How to find investors
If you're thinking about how to find investors for a new business, it might seem like a challenge but there are tips you can use for help. It's worthwhile to remember that you can find investors from a variety of different sources. It's usually useful to explore a variety of approaches to help you find the right investors for a start-up. Investors can supply you with capital and earn dividends when the company makes a profit or you can consider a small low-interest loan as an investment. Try these steps to find a range of investors who might help you:
1. Talk to friends and family
Your friends and family members might be willing to invest in your business, especially if they already know how passionate you're about making it a success. This is typically a cost-effective way of gaining investment. Friends and family can invest directly in exchange for shares or offer you a small loan that you can repay later.
Even though you're speaking to friends and family, it's still important to approach the subject in a professional manner and give them the same information and pitch that you would for anyone else. It's important that you clearly explain your plans and the risks they involve so friends and family members can make an informed decision about investing.
2. Apply for a start-up loan
Another option is to apply for a government-backed start-up loan. You can apply for between £500 and £25,000 to set up or develop a business. To apply, you submit various documents, including a business plan and you can access free help and support to write your business plan. Successful applicants also receive up to twelve months of free mentoring to help them grow the business. It's important to note that a start-up loan is different to a usual business loan. Start-up loans are in the same class as unsecured personal loans.
3. Contact private investors
You can also contact private investors and sell shares in the company to them. Private investors are usually categorised as either angel investors or venture capitalists. Angel investors are individuals with a high net worth who have the money and resources to help the company. They invest their own capital and usually expect substantial returns. Angel investors usually have involvement when a business is starting out and might expect involvement in the day-to-day operations and development of the business.
Venture capitalists use funds from their own investors to purchase shares in a business. This type of investor is more likely to become involved when a business is more established and has already proven that it can be successful. Despite this, venture capitalists might sometimes invest in start-ups. Venture capitalists usually invest higher amounts than angel investors but also expect a significant return in exchange.
4. Contact relevant businesses
Researching and contacting relevant businesses, especially in your local area, can be a useful way to find investors. This approach can be time-consuming and it may take time to find a helpful investor. Contacting related businesses gives you and the start-up exposure to industry specialists. They may be able to invest themselves or may be able to introduce you to their clients or investors who might be able to help you.
5. Use crowdfunding platforms
A crowdfunding platform is sometimes another useful way of sourcing investment by getting funds from a larger number of people. Various crowdfunding platforms are available that are usually suitable for raising smaller amounts of money. On these platforms, you typically offer several different rewards to encourage others to invest in the business. Some crowdfunding is donation-based where investors expect only the advertised rewards in exchange. Others offer peer-to-peer lending where investors offer you a loan that you can repay later. Equity crowdfunding is another option to get investors who receive shares in the business and a proportion of its profits.
What are the benefits of getting investors for a business?
Getting investors for a business gives you many different benefits. This is one of the most effective ways to raise capital to start or expand business operations. You might find you can develop the business more rapidly than if you're relying on your own money or generating funds in other ways. These are some of the principal advantages of raising money through investment:
Offers financial security
Most start-ups take time to generate profits but investment offers financial security whilst the business is developing. Raising capital through investments means it's possible to hire the right staff, purchase the equipment or tools the business requires and pay for day-to-day expenses until the business is generating revenues. This helps to keep day-to-day operations running.
Helps the business gain exposure and market share
A significant task for start-up businesses is gaining exposure and capturing market share. Targeted promotion and marketing campaigns are useful for doing this and investment funds can help to finance these campaigns. If the business can attract more customers it can start to make a profit more quickly and provide a return for investors.
More flexibility than a bank loan
Choosing investment gives you more flexibility than if you seek funding through a bank loan. This is because banks aim to limit their risks and therefore only offer businesses a certain amount of money. This might be less than you're looking for if the investment is risky. Investors have more flexibility than banks and might be willing to invest more later on if they think the business has potential.
Gives you access to funds you can keep
If you take out a bank loan, it's necessary to repay it, but investments often mean you can keep the funds you receive. You repay loans with interest regardless of whether the business is successful and the repayment terms for bank loans are usually fixed. With investments, you retain the money and only pay dividends to your investors when the company is making a profit.
Encourages the business to be ambitious
Investment encourages businesses to be more ambitious because investors want returns that are as high as possible. This can be motivational and encourage staff to set ambitious goals and focus on achieving them. This can also improve the standard of the start up's work and encourage employees to keep improving.
Gives you access to a network
When someone invests in your business you often gain access to their professional network. Investors want the business to succeed so they're likely to use their contacts and knowledge where possible to help it be successful. This gives you access to industry professionals and resources that might otherwise be unavailable to a new business.
What do investors usually look for in a business?
Each investor is different and looks for different things from a new business but there are some points that are usually important. Knowing what investors often look for can help you develop your business and pitch it well to potential investors. Some areas that are important for investors include:
a unique product or idea
a thorough business plan
an appropriate and experienced management team
accurate and up-to-date financial data
Tips for approaching investors
Knowing some tips for approaching investors can help you to do this successfully. This then increases your chances of obtaining investment. Considering these suggestions can help you to approach investors and communicate your ideas and business plans successfully. This also gives you the reassurance that anyone who invests is fully aware of the nature of the business:
Create a business plan
Creating a thorough business plan is important for explaining your ideas to anyone, including your friends and family. Many investors consider a range of businesses before making an investment and a well-written and considered business plan can help your start-up to stand out. A business plan outlines what the company aims to achieve, what its time frames are and how it plans to achieve its goals.
Prepare a short pitch
Investors are usually busy so preparing a short pitch of around thirty seconds is useful. The pitch briefly explains what you do and what you're aiming to achieve. This pitch is valuable for concisely explaining your idea when investors are busy and want to understand the start-up quickly.
Maintain clear financial records
The start up's financial position can have an influence on whether someone invests so it's important to maintain clear financial records. It's useful to have records ready to show a potential investor. Having all the important information available can also indicate that the start-up is a safe investment and a professional business.
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