Challenges Startups Can Face When Looking for Investors
Taking advantage of the right investment opportunities can help startups turn a small but promising idea into a long-term profit-making venture. Data from the National Venture Capital Association shows that exciting startups received a staggering $8 billion in funding during the first quarter of 2017. However, small enterprises generally have to mitigate risks and overcome numerous hurdles to not only attract third-party investment but also seal the deal with the right group.
Attracting Investment
The act of pitching your brand to investors and convincing them that you are worth listening to and are a potentially lucrative asset is one of the major challenges for startups. There are no simple fixes or easy routes to finding the right third parties, and you have to work hard at fundamental basics such as communication and networking to pinpoint possible investment outlets. Remember to be professional in all your interactions and respond to every email, call and message.
Getting into the mindset of an investor can aid your search, so try to envisage how you will help them achieve their own objectives. Experienced investors are generally smart, diligent and skeptical when reviewing new opportunities, so you should be able to prove that you have a dynamic market opportunity with the potential for long-term growth and demonstrate that your target market is engaging with the product or service. In addition to commercial traction, potential investors also look at how relevant your startup is to their portfolio and whether there is a “X factor” that sets you apart from the competition.
Making a Successful Pitch
You need to package up all of these important points to create a successful pitch for investors such as venture capitalists. Telling a story that is relatable and inspirational is one essential component, but you should also cover the core business aspects, including your customer acquisition strategy, revenue model and financial projections. Being absolutely clear about your funding requirements and details such as ownership percentages is also critical, while a working prototype is beneficial if you are a tech startup aiming to fund an exciting new product.
Finding the Right Investor
Deciding what is important in a capital source when you begin your investment journey does wonders for streamlining the search, as you are then able to determine what you desire in a third party. This also empowers your team to make great decisions under pressure. Take the money out of the equation for a moment and think about other factors that investors can bring, including their connections and expertise. Ideally, you want someone who can act as a mentor and put you in touch with other people and corporations that can grow your enterprise.
“Seeking the right investors is critical to get right, even for the smallest amounts of initial seed funding from friends and family,” finance expert and author Alejandro Cremades says. “Just ask Mark Zuckerberg. And those initial investors are going to have a huge impact on who you will be able to attract for additional rounds of funding and what those terms will be.”
Establishing an investment group that is diverse, positive and able to address the vast range of challenges that your startup will face is vital. The right group can also assist with your daily operations or act as a consulting company on an unofficial basis. Renowned investors such as David Kiger have used their own money and business acumen to take startups to the next level.
Knowing What to Avoid
While securing funding from a third party with financial strength, knowledge and connections can transform your business outlook, bringing in bad investors can have a detrimental impact on continuity. For example, an investor who is only interested in taking from the business will be a constant drain on resources and is unlikely to support you sufficiently during the startup phase. Those who are interested in procuring a substantial share of the enterprise should also set off red flags, as they may be targeting a complete takeover at a later date.
The vast majority of the challenges and pitfalls associated with seeking investment can be overcome by conducting due diligence from the offset. Try to look for people who are a natural fit for your business and attempt to build a list of potential angel investors and other interested parties organically by visiting trade shows and increasing your visibility in the sector or industry that you are in. Basically, proving your product or service works, building relationships and being likable is the quick-start guide to getting the funding that you need.
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