Startup funding is the first step in getting your business off the ground to bring your idea to life. Funding is crucial for the young companies to get a foothold in the market and make their operations up and running.

It requires entrepreneurs to equip themselves with expert industry knowledge helping them to keep up with market trends, identify consumer problems and pinpoint realistic competitors. Moreover, it will enable you to secure legitimate investors by sizing up your business opportunity.

Though, finding the right investor is a painstaking task for budding entrepreneurs. Startup founders are often picky in their selection. It is crucial for the success of their business to choose the right ones to set themselves up for optimal growth. 

They look for investors with a good track record who align better with their vision. To help you in your search, we’ve put together this guide to facilitate you in finding the right investor for your venture.

A winning business plan

According to one of the studies by Jason Nazar, an active tech entrepreneur, investor, and writer, every month in the USA, about 543,000 new businesses start. 

But, in the first two years, only seven out of 10 are still in business whereas, after five-year, 5 out of 10 are still around.

Interestingly, of the businesses that manage to survive for 5-years, about 70% follow a strategic business plan.

Similarly, a study at the University of Oregon found that businesses with a plan were far more likely to get startup funding than those that didn’t have a plan.

The given stats imply that the budding entrepreneur should devise a clear business plan and strategy elaborating on how your business will make money and on what timeline.

A robust business plan will enable you to secure investment capital from financial institutions and lenders.

Business plans vary by industry but should generally include the following sections that communicate your company’s objectives, financial performance, and strategy.

1. Executive summary
2. Business background 
3. Market analysis
4. Products and services
5. Management and employees
6. Financials (a profit and loss account, cash flow, and balance sheet ideally for a three-year forecast period) 
7. Marketing Strategy
8. Milestones
9. Appendices

 Make sure your business plan provides all the necessary information for investors.

It will help them make a data-driven investment decision and enhances your chances of getting funding.

Articulate Your Product Value

“Establishing a substantive value proposition is critical if you want to start the journey from your ‘idea’ to building a successful company,” says Michael Skok, Forbes contributor.

For startup funding, founders need to clearly define and communicate the value their product would bring to the market. 

You would require to draw a comparison with your competitors to show how your product is better. Focus on the features as to why those features are worthy of investing.

Generally, companies struggle to engage potential investors and attract customers if they don’t craft a unique value proposition statement.

For that, you need to understand your product by answering the following questions:

• How will it solve a particular problem?
• What benefits customers can expect?
• Why should customers buy from you over your competitors?
• Why should investors invest?

Know All The Money Sources That Are Available To You

Seeking capital for your business depends on your company and the plan you have prepared. 

There are numerous startup funding options when looking for investment for your startup.

Successful entrepreneurs encourage to create a target list of investors when finding one. You can begin the vetting of potential investment options by considering the following factors:

• Domain expertise in your industry 
• Investor’s experience with prior startups
• Track record in helping businesses scale and exit

As there are various investment options, the company’s executive management often uses a mix of different financing options. Therefore, it is essential to understand these sources before deciding on the combination to be employed to raise funding.

To save time, here we have listed a few of the popular ways to raise startup capital based on your own needs.

1. Bootstrapping

Bootstrapping is a process where entrepreneurs opt to self-fund their business venture. 

Startup owners who bootstrap their businesses start with little money with no external investment aid to build their companies. 

Later, the business founders may take financial assistance from banks, from other funding sources like venture capital financing, private equity, or loans from family and friends. 

2. Venture Capita:

Venture capital firms are frontrunners in the startup funding race as they invest their capital in new ventures that have long-term growth potential.

Young companies sell ownership and equity stakes to venture capitalists in return for financing, technical support, and managerial expertise.

Venture capital firms provide capital to the emerging businesses in the following multiple rounds

• Seed round funding
• Early-stage funding
• Late-stage funding

According to the Massachusetts Institute of Technology, U.S. venture capital is heavily present in just three areas of the country — San Francisco/San Jose, New York, and Boston. 

While you can find many of the most well-known VC firms in Silicon Valley. Some of the most prominent VC funds include:

• Andreesen Horowitz
• Sequoia Capital
• Combinator

The VC firm works to grow the portfolio of the respective company to the point where they become an attractive target for Initial Public Offerings (IPOs).

3. Angel Investor

Angel investors are individuals who finance entrepreneurial ventures in exchange for a stake in a company. 

These investors provide much-needed growth capital to the early-stage startup companies, helping them take their first steps. 

According to the University of New Hampshire’s Venture Research Center, 2020 was the first time in several years that angel-funded businesses were in the seed and startup stages.

In 2020, the total startup funding was at $25.3 billion – a 6% increase over 2019.

One of the interesting points to keep in mind when choosing an investor is that an angel investor is more likely to provide capital for an idea.

However, the Venture Capitalists want a proof of concept in hand to fuel your business with capital.

4. Crowdfunding

Crowdfunding is a way of raising capital from friends, family, customers, and individual investors as a collective effort.

This approach harnesses the power of social networks and the internet to raise finance for projects and businesses.

Crowdfunding streamlines the traditional financing model by enabling entrepreneurs to get their opportunity in front of more interested parties and give them more ways to help grow the business, from investing thousands in exchange for equity to contributing $20 in exchange for a first-run product or other rewards.

5. Startup Business Loan

Forbes defines a startup business loan as a type of financing accessible to businesses with limited or no business or credit history. 

U.S. Small Business Administration (SBA) loans enable small businesses to get capital. The organization ensures that a certain percentage of contracts should be awarded to small businesses.

However, the young company’s executives should have good business credit before applying for a startup loan. It will help you acquire a bigger loan with a lower interest rate and reduce the amount the loan costs you on average.

6. Investor Networking

Networking offers unique opportunities for budding entrepreneurs to connect with like-minded people, helping them move their business forward. 

The connections you make while networking enable you to entice potential investors to support your startup.

If you’re looking for investors, use all your available resources and strike-up conversations with people in your circle to find better opportunities in their field. 

Since networking with other professionals in your industry will help you obtain exposure to a larger audience, building an effective network will give you more leverage with investors. 

Aspiring entrepreneurs kickstart their networking journey using the following ways:

• Network through friends and family
• Start with a launch platform
• Join online business networks
• Use your social networks
• Attend conferences
• Follow potential investor’s blogs 

With this network, you can interact with fellow entrepreneurs and potential investors. It will keep you up with the latest trends.

7. Nail your Elevator Pitch

Once your business plan is ready and you have identified the potential investors, it’s time to pitch your idea to get them on board. 

For this, aspiring entrepreneurs need to convince investors about their businesses’ profitability and build a convincing narrative to remain memorable and get startup funding.

To convince investors that your company has massive potential you have to craft a clear, concise, and compelling pitch, highlighting your company’s value and the product or service you sell.

You will need to present your pitch within a short time; therefore, every slide of the presentation should contain one crucial topic, and every bullet point should have one good idea so that you can get down to the crystal-clear message.

For instance, Dropbox Pitch Deck from 2007 is considered one of the best pitch decks of the year. The company has raised around $1.7 billion in funding and is backed by investors like JP Morgan and Sequoia Capital. 

The key takeaways one can take from Dropbox are:

• Draw a comparison with your competitors to show how your product is better. 
• Focus on the features
• Demonstrate benefits to explain why those features are worth investing in.
• Highlight trends that are relevant to your target audience

Final Thoughts

Above all, you should not forget that your passion, charisma, and conviction will significantly influence the investor’s decision. Therefore, know your business inside and out with great fervor.

From launching to scaling your business, there are many things you need to think about.

The most important are startup funding, investor networking, efficient business plan, and product value proposition. 

Though finding the best investor is no easy task. But, it can be made simpler and more effective by working through it with an advisor.

We here at Numberly can help identify the right fit for your startup business along with taking the burden of creating a financial plan that you would be needing as your next big step for setting a strong foundation for your financial framework.

So what are you waiting for? 

Book a consultation meeting with us, and let us take the wheel of driving your startup to success.