I’ve been thinking – how’s this for a ‘How to get investors for startups’ quick guide?
Step 1: Have an (awesome) idea.
Step 2: Find a conference or a meetup from your industry.
Step 3: Scour LinkedIn in search of people with money attending the conference.
Step 4: Get them blindly drunk.
Step 5: Propose your idea (a firm squeeze on the shoulder as you do it is entirely optional).
Step 6: Proclaim: “This time next year, we’re going to be millionaires!”
Step 7: Have them transfer a certain amount of $ to an offshore account of your choosing.
Step 8: ???
Step 9: Profit!
Fun and somewhat accurate but ultimately, not good.
Starting a new venture is an exciting time that’s also very costly, and not just for you. The startup failure rate is abysmal, which makes most investors super cautious about whom they are handing over their money and, more importantly, their trust. So, for all of the entrepreneurs out looking for insights in this area, here’s a little something on how to attract investors for startups.
Know your target
Before anything concrete you do, there are two things you need to have wrapped up:
- a crystal-clear understanding of how you will operate your startup;
- knowing who your investor is.
Assuming you have the first point sorted out, I’ll focus on the second. I’d be lying if I told you that all you need is a well-thought-out business plan as the foundation of your money-raising effort. Sure, your chances of securing funds will become greater. Everyone who is about to fork over some funds would like to know about the market analysis, financial projections, organizational structure, and so on.
However, not all investors see things in the same light. In fact, some top investors for startups value the person behind the business plan more than the plan itself. If you’re wondering why, remember it’s because people are the ones who deliver in the end, not some pretty letter on a screen/paper.
That’s exactly how we at M51 operate. Understanding entrepreneurs on a personal level is at the dead center of our investing tenet. Every investor is different in its own way and looks for different things to base an investing decision on. For you to approach the right people, this includes the very beginning and understanding what type of investors are best suited for your industry. It’s not just being the right fit in terms of people.
Leverage your connections for warm introductions
I know, this has been beaten to death but still, it’s a mandatory, default advice I have to mention, if not just for my credibility’s sake. A great deal of investing is done locally so warm introductions can break the ice in that regard. Naturally, you want to peruse your connections, either via LinkedIn and other networking places for professionals to look for people who are connected to your target investor(s). Investors often favor people who are introduced by a common contact – it’s just easier to get to know all the facts.
Of course, you can go the direct route and use Crunchbase, AngelList and similar. These are great opportunities to learn about potential investors but also let them learn about you. I’m saying a warm introduction is not mandatory but it certainly helps and makes things just a little bit easier.
Nail your investor’s pitch
Your investor’s pitch is your ‘make it or break it’ moment. I’ve written specifically about this topic so you’ll find all the necessary information here. For now, I’ll just reiterate M51’s stance on investing: it’s all about the people, including both you as THE idea or reason that someone should invest in and the people making such a decision. When you finish with your pitch, you want to make the best possible first impression and assure them 100% you fully understand the market, financial side, and how to adapt to unforeseen changes that happen all the time.
Embrace the rejection and learn from it
As I said in the beginning, startup failure rates are astonishingly high. A huge number of startups aren’t viable investments down the road so there’s only a finite number of them that offer a tangible ROI. In other words, you’ll be hearing plenty of no’s and stumbling upon proverbial closed doors. In the end, what you thought were best investors for startups turn out to be the best ways to hear rejection formulated in different sentences.
I hate that it is so but failure is a common occurrence in the entrepreneurial world, especially when getting up on two feet on your own. It’s also an opportunity to learn, whether it’s about yourself, your pitch or company, or the investors themselves. Always be prepared to ask yourself difficult questions after negative outcomes – it’s the only way you’ll be able to answer them next time and become just a little bit smarter along the way. What’s that saying: you’ll likely succeed if you have failed than if you haven’t tried at all? Something along those lines anyway.
This is a long and taxing process
Maybe it doesn’t look like it at first, but it is. A lot of thought goes into getting funded, and it takes time and effort. From knowing how to get investors for startups to actually locking them in, there’s usually a few months (sometimes way more) worth of messages, calls, meetings, follow-ups, and everything else needed to set yourself up for success. Even then, there’s a real chance all of it will be for naught. Your only choice is to persist and push through.
Luckily, there is a silver lining. It only takes one investment to get the ball rolling, especially if it’s the first time you hear ‘yes’. When you receive an investment from an investor, it’s more than just money – it’s their trust you’ve gained as well. Every other time you look for funding, it gets just a little bit easier because now you have an entry in the ‘win’ column. Build on it to succeed all the way.