15 ways to get potential investors to fund your small business

Have got a great business idea and are looking for funding to accelerate your start-up? Do you want investors to follow you for a stake, and not the other way round? Then, you have come to the right place!

Funding is important because you need money to take care of things like cash for paying employees. Many people feel that they cannot start a business because they don’t have seed capital, or their parents are not rich enough. Traditional banks are hesitant to give start-ups loans because many of them don’t have many assets on their books. So, entrepreneurs start to look for other funding options.

This is where investors and venture capitalists come into the picture. But getting them to trust a new idea or business, and part with their cash is not easy. Investors do not look for resources in a company, they look for resourcefulness. Many of them claim that they sign on one percent of the deals they consider. So, it is tough for start-ups to get the right investor.

Setting up a business isn’t just knowing what to do with ideas and planning alone. As a small business owner, you have to look for funding to start your business. In this article, we will tell you how to improve your chances of hearing a ‘yes’ from investors.

1. Spruce up your image

You have to look at the part and say the right things while giving a presentation to venture capitalists. You have to make them believe in you and your vision. You can consult an image consultant to get a makeover, and come across as smart, convincing, and confident. Investors come from different walks of life, and you may have to customize your pitch for each one of them.

2. Do your homework

Before even considering outside investment, consider how you can launch your business, and earn revenue. It will be better for you in terms of knowledge when you finally decide to get outside equity. You have to prove to investors that you have a good understanding of the industry you want to venture into. So, learn about all aspects of the business.

3. Build a prototype

Make a prototype of your product, even if it is 60-70 percent complete. This will give you some confidence to approach angel investors. As you mature as an entrepreneur, your product will evolve.

4. Make a business plan

Write a convincing business plan to impress your investors, and get them excited about your start-up. Certain business plans interest investors more than others. Every investor is looking for some tangible plan to ensure that they get good results on their investments. Present in an attractive format, how much margins you are hoping to make, and the returns that investors can hope to make on their investments. Nothing excites investors more than solid numbers!

Give details about the number of potential customers that you are hoping to sell your product or service. It will be satisfying to an investor, that you will have a large customer base.

5. Have a viable business model

Investors like to invest in companies that have a clear and replicable business model. Ideally, it should be detailed, tech-enabled, scalable, and with lots of growth potential. Investors don’t like to fund static business models.

6. Don’t overvalue your company

Honestly value your business, because investors are wary of glib entrepreneurs. Any serious investor will examine your data regarding the costs for setting up or diversification. If your figures are inflated, you will lose their trust. So, ask for the actual amount that you need, and not anything extra.

7. Find the right investor

It can be pretty tough trying to locate the best investor for your start-up ideas. Look out for those investors who have a positive history of funding other similar businesses like yours. They should understand your business, and, if possible, be active in the same field.

Incubators are investors who foster start-ups through the developmental stages until they have sufficient, human, financial, and physical resources to function independently. You can approach them, provided, they have the required finances to meet your needs, based on mutual agreements.

8. Is your business a disruptor?

Investors look for disruptive start-ups who can build a word-class product without too many overheads. In business jargon, disruption is to change established industries to create entirely new ones. Some famous examples of disruptor companies are Amazon, Facebook, and Netflix.

Adopt some innovative strategies to break through the competition. It could be cloud computing, cashless payment, or an interactive website.

9. Build a great team

A strong management team will attract investors, so hire the right candidates. See that they have the requisite experience and skillsets for the position they have been recruited for. This will give a strong signal to investors that you are serious about your job.

10. Target the market

Choose your market. Ask yourself, is it going to grow over the next three years? Investors like to see growth potential in a business. You should first do some market research and get some validation about your business idea.

Investors lookout for unique business ideas that are low-investment with a high probability of making profits.

Social media is an incredibly powerful tool to connect to people, and many of your potential investors are on various social media platforms. So, use social media to pitch to them. Most investors prefer to be contacted through LinkedIn or Twitter.

12. Approach angel investor groups

Instead of approaching individual investors, it is much better to contact angel networks, because they serve as groups of several investors. They are usually wealthy people who are looking to invest in several developing companies. You can receive offers from several investors at favourable terms, for the infusion of funds.

These angel investor groups usually work side-by-side with an investment firm, which provides a large pool of funds. The way it works is that you need to apply to one of these networks. Once you have been screened and accepted, you will be able to gain access to their group and get investment funds.

13. Use a business accelerator

Besides funds, smart entrepreneurs also need active support, engagement, and resources. A business accelerator is a program that gives start-ups access to investors, mentorship, and other support, to enable them to stand on their own feet. Try making a pitch to them by giving a strong picture of your positioning in the target markets.

14. Explore equity financing

You can sell shares of your business to outside investors to get funds. This is called equity financing. When you start to make money, your investors will take a share of the profits. Since it has got no repayment schedule, it is very attractive to entrepreneurs.

15. Crowdfunding websites

Crowdfunding is a great way to grab the attention of prospective investors for your company. Irrespective of your industry, you will always find a crowdfunding platform that is willing to put in a substantial amount of funds. Some of these crowdfunding sites like Kickstarter and Indiegogo are known philanthropists that do not expect any profits from your company after investing.

Looking for investors is the small businessman’s version of a job interview! You will need actual funds to drive your ideas into reality. We hope that this article will help you in persuading angel investors to fund your start-up.

Also Read:

1) How to Market your Small Business Using Word-of-Mouth Publicity?
2) How to Identify Gaps in the Market for Your Small Business?
3) How to Start a Plywood Business in India?
4) How OkCredit Is Making MSMEs A Part Of Digital India?

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FAQs

Q. For what type of entrepreneurs, is equity financing a good option?

Ans. This is best for sole proprietors who need some start-up funds.

Q. What is royalty financing?

Ans. In this type of financing, investors are guaranteed a certain percentage of the revenue, usually between two to six percent.

Q. While getting an angel investor to invest in my start-up, is there anything I should be careful about?

Ans. Many professional angel investors try to get too much involved in the business. It is better not to take their money because you will be under pressure to give results, all the time.

Q. What is the difference between start-up accelerators and incubators?

Ans. Accelerators give guidance and mentoring to those start-ups that have established themselves but need some support. Incubators are meant for less-developed companies to get through the early phases until they can stand on their own.

Q. What is the best way to differentiate from my competitors?

Ans. Have proprietary ownership over some part of your business, which nobody can replicate. Get it trademarked. This will give the maximum competitive edge.