A Guide To Approaching An Investor And Raising Capital For A Startup

Whether you are a startup or an established mature company, by now you may have realized that cash is the lifeblood of business. Without it, you reach the end game of your business.

Raising capital for a startup has always been challenging. However, in this modern age and time, you are not restricted to traditional banks or your rich uncle to finance your business ideas.

The internet and technology have opened up multiple opportunities to find diverse and viable funding options. But, unless you have a definite plan and a roadmap to follow, you run a risk of wasting the opportunities you have.

You must know what your funding options are and points to remember for approaching investors.

Most Common Methods Used To Raise Capital

Business Loans

Business loans from traditional banks are one of the common methods of obtaining capital. If you need larger investments for expansion or acquisition, you can get a long-term loan. But, if your need is small and immediate, a personal loan for business is perfect.

Business Credit Cards

It’s the easiest way to get finance. These cards can be helpful as a last resort. They have high-interest rates and that’s why they have to be used with caution. Otherwise, it is a debt trap.

Line of Credit

It is a rather flexible option. With the evolution of fintechs, getting an unsecured personal line of credit for business is not only easy but cost-effective too. Personal loan interest rates are comparatively cheaper through online platforms than through traditional banks.

The best part of having a line of credit is you can withdraw money whenever you want and for whatever reason. As you pay back, your credit line replenishes allowing you to withdraw more up to your credit limit.

Angel Investors

They can be your family, friends, acquaintances and could be someone you found through online platforms. Angel investors do not have deep pockets. They can provide you with a small capital to get your startup off the ground.

Venture Capital (VCs)

They are big investors. They’ll only invest in a startup if they see the potential of it becoming successful and profitable. They are likely to have a significant chunk of equity in the business.

Crowdfunding

This platform solely works on the power of social media. If you are able to create hype and get people excited about your business idea, you can raise capital for your business. But, you need to provide something in return. It could be your product prototype or something as simple as a thank you note.

How To Reach Investors?

Before you venture out to raise capital, you need to start thinking from the investor’s point of view. This is the key to raise funds successfully.

Investors are busy people. So, if you want to get a real shot at getting the capital you need, you have to be investor ready. It essentially comes down to the below-mentioned points.

Prepare your documents

You’ll need two pieces of material:

1. Investor Pitch Deck: It’s the first communication you send to the investor and it’s approx. 10-page presentation.
2. Business Plan: It’s an in-depth document that will outline everything about your business – from history to vision/mission, from strategies to exit plan – it will have it all.
3. Provide investment-ready material

Your documents have to be well-structured so investors can read and understand immediately.

Don’t make them refer to your website for more information. If you do, no matter how good your idea/project is, it is sure to get a “reject” stamp.

Your business plan and pitch deck should have all the relevant information they need to make a decision.

Create a strong business plan

The business plan is the blueprint of success for a startup. It must be solid. It should include research, operations, marketing, investment, and exit strategies, and all other items that are essential for a business to succeed.

Have clarity on strategy

Your strategies need to be well-thought and based on solid research. Because it matters. Investors can immediately gauge the potential of your business plan. If you have not thought it through, you will fail to impress the investors.

Value your management team

It’s important, because investors pay a great deal of attention to the management team, their personalities and the experience they bring to the table. Do not underestimate the power of human resource.

Know which investors to approach

If your business doesn’t have scalability potential, you may want to approach only certain types of investors. If your business has the potential to scale up, VCs are perfect investors.

Key Takeaway

An investor’s decision to invest or not to invest will depend upon how investment-ready you are. Your potential investors need to know that you have done your homework through the documents you present to them.