Every entrepreneurial journey has the point at which funding must be secured if the startup is to survive. Getting funding, however is not as simple as most entrepreneurs think. Today, it’s relatively easier to access capital than it was in the past, but choosing the right investor for your specific business needs is important. Most entrepreneurs, when seeking funding feel that they can’t be too picky. They reason that If they need money, they can’t possibly reject anyone who has it. Richard Branson, billionaire founder of Virgin group pointed out that an investor’s deep pockets are “not the essential quality that will sustain the relationship and the business in the long term.” This means that if you are unfortunate enough to go with the wrong financial partner, you – in the words of Richard Branson – will “dim the spirit and enthusiasm of a new enterprise, muffling the spark that prompted you to launch this project.” That spark, Branson said, is the one that “is most likely to make your venture different from your competitors.'”
“The best investors are those who ask you, ‘What’s the potential here, and what will it take to nail it?’ Rather than, ‘How little capital do you need to execute your plan?’” – Donna Harris, co-founder of 1776, a startup assistance company. Getting the right investor for your business is about more than convincing the most affluential person you can get to. It’s about finding someone who believes that what you are trying to achieve, understands the challenges ahead and has the business acumen to help you succeed. If you eventually choose an investor who doesn’t have your interests at heart or who who doesn’t care about what you’re trying to build, you may have to deal with a bad relationship every day for years. Be selective about everyone – even vendors and customers. If someone is not adding value to what you’re doing, do away with them. Here are some tips to help you find the right investor.
- Know your options: According to the Small Business Administration Venture Capital Guide, these are the types of investment options you should be aware of.
- Private equity (PE). PE covers a number of investment types that are usually made by private individuals or privately-owned institutions to purchase a company, fund a project or make a private investment.
- Venture capital (VC). VC investments are managed differently and usually designed to fund startup companies with the potential for high growth. VCs also provide startups business-planning expertise and assistance.
- Angel investing. Angel investors are high net worth individuals who seek high returns through private investments in startup companies.They provide similar startup financing as venture capitalists in smaller amounts.So how do you know which investment option has the right investor for you? Well, if you are looking for a relatively small amount of money, seed investors are the way to go. Seed investors put relatively small amounts of money into startups that show promise, before they become much larger companies. For much larger investments, you’ll need an angel investor. Angel investors are typically retired businesspeople who keep an eye out for investment opportunities. Substantially higher investments tend to come only from venture capitalists.”
- Look in the right places: You may already know what kind of investor is the right investor for you and what you want from them, but knowing where to go to connect with them is also important. There is usually at least one major angel network in every country – from Angel Capital Association in the U.S. to the Lagos Angel Network in Lagos, Nigeria. These networks provide platforms that let new CEOs find and communicate with the right investor.
- Have the perfect pitch up your sleeve: Do not hold back on your pitch to investors. Take the time to think about what you want to say. How will you communicate your mission and attract the right investor who shares your vision? Discuss how your product or service will solve a problem and be sure to have a clear business plan. Use realistic financials and proper market research to back up your predictions.