Investors are the lifehouse of startup business funding. For this reason, an entrepreneur must know the important things to consider in selecting a business partner.
With today’s technology, finding investors for your startup is easier than ever. But one thing you must consider is choosing the right investor to partner with.
Today, we’ll identify the key traits of these two types of investors. We’ll also help you find the right investor that you and your business needs.
Angel Investor Vs. Devil Investor
Angel investors are the ones who trust the founders. When the progress is slow or when the company misses a target, they don’t try to control the founder. Instead, they offer guidance without taking the steering wheel from the CEO.
Different types of angel investors have varied ways of helping entrepreneurs succeed. They give capital and useful information on how to make a business grow. They boost the founder’s confidence, creativity, and energy.
On the other hand, devil investors are often impatient when things don’t go as planned. Their reactions towards rough times can bring a negative impact to the founder.
When the company is showing slow or zero progress, they’ll start to ask questions that will lead to scrutiny. Their supervision increases. They won’t see the fine line between mentorship and interference.
After this, the CEO stops making risks and uses his energy to deliver the investor’s requests. As a result, the founder becomes unmotivated and unconfident about his own decisions.
So, how do you make smart decisions when you’re choosing investors for your startup?
Here are some things you need to look for in finding partners financing your business.
Decide on the number of investors you’re going to take.
The number of investors you have can greatly affect your business.
It’s easier to get funds with a single investor because you only need his or her approval. But if you’re after multiple investors, you have more people to convince.
When it comes to decision making, it won’t get too complicated if you have one investor. Because if you have more, you need to listen to each of them and arrive at one agreement.
Also, you’ll have less problems in the division of profits if you have one investor. But if you have many, this matter can be a challenge. You have to distribute it without losing your own capital.
Hire the right employees
Hiring employees is one of the important tasks of founders. Since this is a new business, you need to get a CTO (Chief Technical Officer) that will help you out in terms of science and technology. You also need to have a CFO ( Chief Financial Officer) to track your cash flow, identify the strengths and weaknesses of your finances and provide solutions for financial difficulties.
As a founder, you need to be careful in choosing your employees, especially your first hires. Their values, passion, and work culture should be aligned with yours. They should be 100% all in, so when things get rough, they will do their best to help you and your company.
Also, keep in mind that an all-star team can help you land the right investor.
Delegation of Tasks
Founders are team leaders of their companies. For this reason, they need to have a business plan.
A business plan is a must in task delegation. It helps you to assign the right person for the job.
You’ll know who’s in charge of operations, marketing, tracking and managing the finances.
It also serves as a roadmap for your business. It’s helpful in explaining the goals of the company and the expectation from each worker.
This way, you can assign the tasks properly, which saves you time, energy and money.
Let us now learn on how to get the right investor for your business.
Find Investors Through Networking
Networking is a good way to build connections and find future investors.
To create your network, attend meetup groups for startup events like Xnode and StartupGrind. These organizations will allow you to showcase your business ideas. With these, you’ll find potential investors and get feedback that will help you improve your startup.
Also, keep in touch with your contacts and ask about their professional growth. Let them know how grateful you are that they are part of your professional network.
Make your contacts feel valued first before you ask something from them. After all, networking is not just about temporary business relationship; it’s about creating a permanent one.
Create a list of your future investors
Brandon Bornacin, the CEO and founder of Seamless.Al, is a serial salesperson, entrepreneur, speaker, author and strategist. His company had brought success to more than 10,000 professionals worldwide who worked with IBM, Cisco and Accenture.
He provided helpful strategies on how to come up with a list of investors.
According to him, it should include Venture Capitalists and Angel investors.
Venture capitalists invest in businesses through funds from different partners. On the other hand, angel investors buy into a business in exchange of equity.
He suggested to use helpful tools such as Seamless.Al , LinkedIn and Angel.co to get more contacts. Also, you can build more connections by looking at online platforms which are equity-based crowdfunding sites and Circle Up.
He also shared that you should arrange the list of your venture capitalists in this order of priority:
- Managing partner
- Managing director
- General partner
- General manager
- Principal partner
- associate (only if others are not available)
Apply For An Online Business Loan
Loan applications can be done through these platforms. You just have to sign up, file for a business loan or a personal loan. The loan approval is based on your creditworthiness.
If you want to search and compare different offers that will not harm your credit score, use SuperMoney’s prequalification loan personal tool.
Once it’s approved, the investors would grant your request. Then, they will earn through its interest.
The good thing about online loans is they do not require equity in exchange for the funds. But they also have pitfalls.
First, online loans have higher interest rates. Second, the online lender may leave out of business which will cause trouble to their customers.
To avoid these, it’s best to research about the lending institution first. Know about their reputation from business owners they’ve worked with.
Communicate Clearly To Your Potential Investors
Create an image to your investors’ mind the business that you want to build.
You can accomplish this by creating a business plan that consists of competition, behavior of the target market, income and the individuals that will be part of your company.
To make investors fund your business idea, prepare a financial proposal that will explain the resources they have to give and how much can they gain from it.
These two strategies will gear you to make your investor finance your small business.
Connect Through Social Media Platforms
Create a warmer atmosphere as you connect to your future investors. Share something about your company and your products through Facebook, Instagram and Pinterest.
You can also initiate connection by following and learning from business experts through Twitter and LinkedIn.
This approach will help you gain connection by not being too formal.
Prepare for the pitch and due diligence
Make an extraordinary pitch that will reveal the highlights and revenue opportunities of your startup.
Also, brace yourself for due diligence, which refers to the imperative concerns that should be settled before getting into a certain transaction. This process can be compared to the interview process with a potential employer.
Prepare all the materials you need to get ready for due diligence. It will be tedious, but there is a high chance that you will get good offers from investors.
Make A Wise Choice
Once you have received offers, you should select the investor that will provide the best proposition and explain what he could do for your company.
When it comes to arriving at a final decision, you have to consider the investor’s expertise, eminence, and aims. There should be mutual likeability between you and your investor as well. Remember that you’ll work with your investor a lot, so don’t underestimate the power of natural chemistry.
Ben Graham once said, “The individual investor should act consistently as an investor, and not as a speculator.” Select an investor who will not be a dictator but rather, who can be your partner in your business. Keep in mind that these individuals are the life-givers in startup business funding.
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