How to Attract Business Investors to Your Business or Startup
16 Aug 2021Content
Table of Contents
If you have a venture idea looking for capital, business investors can help you tremendously in this regard.
A growing company that cannot keep up with expenses is a company that is “factually” not growing. In the realm of business, monetary gain is just as important as internal development.
Whether you are an entrepreneur or small business owner with a startup in need of funds to take it to the next level, this article offers practical tips on attracting investors to your company. We’ll also discuss what investors look for when deciding whether or not they want to invest in your company.
So whenever you’re ready to dive deep into business financing, keep reading.
Why Are Investors Critical to Business Success?
A business can do well without investors. We know this. However, a business without investors is missing out on a great deal of support and experience that one cannot neglect.
Investors are critical to any business because they allow companies to succeed at an accelerated rate.
Attracting investors isn’t always easy. But it is worthwhile to know what type of investor will work best for your company and how to get their attention.
An investor is an individual who provides capital with the expectation of profit from income such as dividends. There are two types of investors: equity and debt.
Equity investment usually comes out of one’s own pockets. Still, it often has higher earnings potential than lending funds at interest rates because shares carry voting rights, allowing them to have decision-making power within a company.
At the same time, debt can include loans or lines of credit that come from banks or other institutions outside the company in question.
When to Look for Outside Investment
When it comes to attracting investors, your company can do this at any time. However, “now” might be the wrong time in the first place. It would be best to look for investors when you are in a growth phase, at least.
Look for investments when:
- You have a solid idea for a product or service but lack the funds to make it happen.
- Your business is generating enough revenue, just not as quickly as you would like
- The need arises from an unforeseen event such as damage caused by fire or natural disasters.
- You are looking to expand into new markets and need capital
- You have a promising business model that attracts investors due to its high growth potential or an innovative idea
Which Investor Types Are Best for Your Company?
If you have a well-thought-out business plan and are looking for investors, it’s best to start with those closest to you. Friends and family members may be willing to invest in your idea if they believe in its potential success.
Professional angels typically take an equity stake of around five percent, while venture capitalists will often take anywhere from 15%-30%. Angel funds generally invest smaller amounts ranging from $25,000 to $500,000, whilst VCs usually invest much larger sums such as $250 million.
These figures should not scare off entrepreneurs. There are plenty of funding sources that exist that can provide capital without ownership stakes or the need for voting rights.
Bank loans offer a fixed return in the form of interest. However, they are often difficult to qualify for and usually require collateral.
Crowdfunding is a great way to quickly raise money with little or no investment by using online platforms. One can do this via their own website and sites such as Kickstarter and Indiegogo.
However, keep in mind that investors are not entitled to any part of ownership rights but do receive rewards instead, which may include equity stakes off future profits once funds have been fully repaid.
What Do Investors Look For?
Before investing their time or money, many potential investors want reassurance that a company has a good chance of succeeding with their help and guidance.
Some questions these individuals might ask themselves include:
- “Do I believe in the entrepreneur?”
- “Is this industry growing?”
- “Can the company’s product be replicated?”
You can come up with questions that fit your personal needs.
What Should You Do if Investors Are Hard to Attract?
Your best bet is to focus on what investors are looking for when considering investing in your business.
If you can answer these questions and prove a strong demand for your products, then it may not be long before someone invests their time or money into helping turn your idea into reality.
The most successful companies are those that know how to attract investors and use them as valuable assets.
Companies That Got Investments To Succeed
Some of the greatest companies of our time have got to where they are because of funding. Here are some examples of companies that had to secure funding to expand in every regard:
A group of friends decided to create a service called WunWun, which is an on-demand courier and delivery smartphone app. VCs turned them down for not having enough experience in the logistics industry. Still, they didn’t give up and continued with their venture until they had raised $15 million from traditional investors.
Another company that got creative was Airbnb. This startup has become one of the most successful companies in recent history. The founders used personal savings to start before turning to family, friends, or acquaintances with money and outside investment sources like Y Combinator.
Another example is Fiverr, a company that is built on a platform of freelance talent. The founders used their own personal savings and the money they made from customers to start raising $500,000 in outside funding for themselves.
Yet another example of how companies got creative was Nike. It became one of the most profitable brands by selling athletic footwear and apparel at premium prices before going public with its stock and becoming an investor favourite. Nike’s success story shows that good ideas will find investors if there are enough determined people behind them!
Strategies to Attract Investors
Oddly enough, attracting business investors is only as hard you make it. There is a myriad of ways to do this. But only some of them are effective.
For instance, some entrepreneurs are turning to social media and crowdfunding platforms, such as Kickstarter. These sites offer the opportunity for anyone with a great idea or product to raise funds by asking others to donate money in exchange for rewards.
The more people you reach out to through these means, the better your chances of finding someone willing to invest. The key here? Be prepared!
Even if you’re not looking for funding at this time, you must have an executive summary detailing what your company does and how you will need much investment capital to create a pitch deck that best communicates what sets your business apart from competitors.
The Strategy List
Investors want assurances before making large investments in any new venture. But many small businesses don’t know where. Here is a list of the best strategies to attract investors:
Create an executive summary that outlines your company’s needs and how much investment capital you need to get started.
Develop a pitch deck to communicate the vision of your business and its competitive advantages compared with other firms within the industry.
Distill down all aspects of your business into simple terms so investors can understand them easily and quickly. Many small businesses rely on jargon that is difficult for outsiders to decode or comprehend. This only discourages their chances of getting funded.
Know who you are pitching to before presenting yourself. This means understanding where they come from (culture and education) and why they invest in certain industries over others (why not?). It also helps if you know someone who has a connection to the individual you are pitching to.
Don’t be afraid of rejection, and know that it’s a part of any entrepreneurial journey, as well as being an investor in companies with high-risk potential.
Keep your pitch short but engaging. A two-minute presentation will do just fine!
Fill up gaps in knowledge by reading articles about how to raise money for small businesses or attract investors from sites such as Entrepreneur magazine (entrepreneur.com).
Take advantage of every opportunity to speak with someone who might be able to help you. The more people you talk to, the better your chance is at finding an investor!
Network as much as possible. The best way for business investors and entrepreneurs alike to find each other is through networking events in their area or online platforms like LinkedIn.
Develop a competitive advantage by creating something new that no one else has thought of before. This will make it easier for potential investors to see what sets your company apart from others.
What to Avoid When Attracting Investors
As much as there are things to do, there are things not to do. To attract investors, you must first prevent them from being pushed away. If you’re trying to get funding, you should avoid these pitfalls.
Not Knowing What You Are Talking About
It doesn’t matter whether it’s your first time speaking in front of an investor or not. Make sure that the points you are making are relevant and accurate. This is a great way to lose potential investors before they’ve even made their decision!
Talking Too Much
This includes talking too much rather than letting them speak—or worse, interrupting and trying to “one-up” every point they have with one of your own!
The more interesting facts you can share that will show how dedicated you are to succeeding at whatever business venture you’re pitching, the better chance you’ll have at getting funded.
Trying to Oversell Yourself
This will only give your potential investor the idea that you’re desperate for funding and a likely candidate to disappear with their money if they are foolish enough to invest in you.
Treating Your Investors Wrong
Avoid treating investors like enemies rather than people who help open doors for future generations of startups or small businesses. If anything, it’s time we start seeing them as allies!
Don’t speak negatively about other companies in your industry. This is never a good idea because you can’t be sure that the person funding you won’t also invest in one of those competing businesses down the line!
Avoid downplaying any sense of risk or uncertainty to potential investors. This will only make them think twice before putting their money into your company, no matter how promising it may seem from an outsider’s point of view.
Not Being Prepared
Don’t present yourself as too inexperienced when speaking with business investors who have decades more experience than you do.
They’ll see right through this and know that they’re best off investing elsewhere if they want someone successful leading their project/business venture!
Web Design to Attract Investors
The main takeaway from all this is that you should be presenting yourself in the best possible light. Make sure your potential investors are happy with what they see.
The more people who think highly of you (and not just as a business), the better your chance at success!
No matter how much research we do on requesting funding for startups or small businesses, it’s never going to work if our pitch doesn’t appeal to those around us—especially when trying to attract business investors.
If you’re interested in optimizing your website to attract new investors, get in touch with us, and we will happily accommodate your needs.
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