How to find an investor and raise funding for a startup?

Every entrepreneur knows that one of the most important parts of starting a business is finding an investor for their startup. While working with an angel investor is one of the most popular ways to secure the funding, it is not the only one. In this article, we provide several hints on raising funds for your business.

Who is an investor? It is a well-off institution, company or individual, who is willing to invest some money in a startup if it appears to promise long-term success. The investors are usually successful entrepreneurs, who have experienced the same pains of raising funding for their business at some time, and are now ready and willing to help the promising startups. Globalluxsoft team has contacted several investors, along with CEOs and startup founders, who shared their personal experience of launching a startup and securing the investment for it.

Thus said, there are multiple ways of securing funding for your business venture:

1. Startup funding programmes like Nordic Accelerator or Startup Europe.
2. Various startup accelerators like Ycombinator.
3. Venture Capital firms.
4. Angel Investors on platforms like AngelList.
5. Crowdfunding through the platforms like Kickstarter.

Below we describe the pros and cons of each approach and cite the startup owners that chose either way.

Securing the investment through startup funding programmes

There are multiple state and institutional funding programmes, as governments and institutions across the world understand the importance of startups for revitalizing the economy. Any entrepreneur with a bright idea and a well-written roadmap of bringing it to reality can submit a request to startup accelerators like Startup Europe or Nordic Accelerator. The downside of such an approach is the insane amount of paperwork to go through in order to secure the funding and to report the progress along the roadmap.

This is what our friends, CEOs and Founders, CTOs and investors, have to say on the ways to gain the potential investor attention and raise funding for your project.

Johnathan Holland, CEO and Founder of Curexe:

“The best way to interest your investor is to find one that is connected to your story, update them monthly with milestones for the next month and then be honest about your successes and failures. You are building a long-term relationship with your investors so it’s important you are all on the same page. Being a part of an incubator like the DMZ or going through accelerators like Next Canada programs is a great way to get introduced to investors.”

Below is the opinion of another startupper, Sergio Villasenor, CEO and Founder of Elliot:

“Best place to raise funding: participate in an accelerator program. Best way to interest: show vision, prove you can execute, prove you can hire.”

Florian Mott, CEO and Co-founder at mything GmbH, told us:

“…some basic things (not rocket science).

1. Elaborate the idea / build a great product.
2. Get some visibility (social, PR, events, etc.)

after that:
3. Be prepared when you meet the target people somewhere (eg events).
4. Try to find shared connections with the target people.

Partly after one and two, you will be approached directly.

As written, not rocket science — you just need to do it in a structured way. It’s hard work, not fun.”

Nikita Gorshkov, CEO at Caesium and Associate Director at Wayfair:

“The initial hook is to provision a comprehensive, understandable idea. Deliver it in one-liner or elevator pitch.

Second is the team — do you have the right skill set, experience within the team, does that project instill confidence that these guys will go an extra 100 miles to deliver the product? And do they have all the required skills to do so?

Then comes the business plan and models, prototype — this shows that these guys know their business and have hypotheses that can be validated on the market.

Most importantly — are there any proofs this product is needed on the market? Contracts signed? Media coverage? Public traction?

Finding investors is tough, you’ll have to go through conferences, lists of friends and friends of friends. There are hubs of startup activity — in Europe, Berlin is becoming the most diverse and dynamic one. Of course, there is the US, where attracting initial capital might be easier. In addition to Berlin/Munich/London and VCs (and there are all kinds, from very early-stage to late-stage ones), one should look at governmental programs and financing from institutions like the IBB.”

Startup accelerators

There are multiple platforms like Ycombinator aimed at helping the startups and investors get in touch. However, hooking the investor there is not a victory yet. You will have to show your product can cause traction and your team can deliver on the promises. Otherwise, the investors will forget about you, as their attention must be split between many applicants.

Here is what Michel Jamati, CTO at Lexop told us regarding his experience:

“Interest: we found that investors put their faith in the team before the idea. The idea is how you get their attention. Your product has to be simple, solve a clear and known problem for a large enough market. After that, once they start digging into your company, the team becomes the most important thing. Do you have the right skillset to use their investment and help?

For us, investors came from cultivated relationships. They came from finding the right people at cocktails, events and from introductions. Then we invited them to meet the team, kept them informed of our progress, asked for their advice when we needed it … Accelerators are a great place for this because they naturally gravitate around those instruments. Most accelerators are directly associated with investment funds as it is which makes it even simpler to meet VCs and Fund managers.”

This is the experience of Oscar Jofre Jr., CEO at KoreToken:

“Investors today are knowledgeable about where they can and cannot invest and companies who don’t follow those securities laws find themselves in trouble. Best place for companies to approach are online platforms that will perform due diligence on the company and will also make sure it vets in the proper investors for your company. This becomes a win-win situation”

Scott Mindrum, CEO @ CRaKN, LLC, has the following opinion:

“In my experience, both as investor and entrepreneur, it’s better to find startup incubators or accelerators near your location, so you can start partaking in them and interacting with investors and startup community near you”

Venture Capital firms

These companies specialize at providing the funding to startups if they see the signs of the long-term success of your product. The downsides of this variant include the need to have more than merely an idea when reaching these businesses. You need to have a team, an MVP and some press before they can talk to you seriously. They also take some equity in return for the investment. The main benefit is that their resources are usually limitless, and if your business can demonstrate steady progress towards success, you will have all the funding you need.

Ravi Ramkeesoon, Founder & CEO at FindMyFans, shared the story of success for his startup:

“My pre-launch strategy was to begin building relationships with investors early on…not asking for money but making them aware that I was creating FindMyFans. This way, you build a relationship very early on and you inform them of your progress as time passes by. They can refer you to other investors, it’s a pretty tight community.

Additionally, I focused on building media relationships in the same way. This way when it’s your time, reporters already know who you are and it’s easier to get something published, full articles and quotes in your domain expertise.

The investor referral combined with the media attention (along with team and product) are the four key ingredients in getting investors interested.

A large percentage of the private investment money in the world is in Silicon Valley, so you’ll eventually need to develop relationships with VC firms there. If you have a great product, a good leader, a well-thought-out plan and can show some traction with users and the media, investors should be lining up.”

How to ensure your request will be positively accepted by the VC firm then?

Carisa Miklusak, CEO, President & Co-Founder at tilr:

“That’s a loaded question without a simple answer. One way to attract investors is to deliver great value to your clients and be recognized for it via the community and/or press. This has worked well for tilr. When you attract investors with this approach, they email you, you don’t have to go out and find them.

Another way to find investors is to simply research what Venture Capital (or other types of capital) firms you feel are a good fit and cold call them and/or submit a pitch deck. Follow up to ask for a 15–30 min meeting to pitch your value prop. Hopefully, there are a few helpful nuggets there…”

Christian Knudsen, Vice President, Global Sales at CloudGenX Solutions | Chief Technology Officer at VinGroup | Speaker @ Dreamforce 2017 | Technologist | Consultant, one of the most passionate startup community disruptors and innovators in Canada has shared his rich experience of dealing with VC companies in North America:

“One of my partners is currently developing the top-of-the-line AI-powered blockchain-based advertising platform called Advertiise that interacts real-time with nearly 500,000 third-party online advertising platforms. He has recently gone through a couple of successful rounds of funding, securing several hundred million USD from investors in Canada, Palo Alto, Silicon Valley and basically all across North America.

Based on his experience, when you talk to VC firms, you need to project your vision of the product, the scope of what you are looking to accomplish. Some VC companies are glad to work with concepts, but after you get a couple round of funding, you need to market a ready product and onboard new talents to keep the product evolving.

The VC firms want to hear you vision and see a clearly outlined business plan, so many companies hire the professionals to write a good business plan for them, as there are companies lending their talent to build such plans and win the approvals from venture capitalists. The Advertiise, for example, has paid considerable sums of money to professionals to build exquisite 40-pages-long business plan, 30-pages-long financial plan and 20-pages-long marketing plan — but these documents are really excellent and they convey the vision of what the company wants to do and how they want to do it.

It also helps a lot to have some prominent names from the industry sitting on your board. I often come in with either technical experience or industry experience, and it lends more credibility to great projects, allowing them to secure investment.

The next point is that VC firms are very intelligent. When you present your product, they are deliberately trying to find some flaws in it. The main question is: how well is it going to scale? Thus said, build your product with scalability in mind, it always pays. Whether you want to raise 500,000 or 5 million or 10 million dollars — your product needs scalability.”

Angel Investors and seed funding

There are multiple platforms like AngelList aimed at helping the startups meet investors and form the teams for their projects. Angel investors are quite often the entrepreneurs who went all along this way already or other institutions that can spare some funds to help a new entrepreneur succeed. Seed funding from friends or relatives is a viable option too.

What is good about this approach is the possibility to present the idea of a product that solves some problem and gather the input to make sure the investor thinks along the same lines as you do, so the final product will not disappoint them.

The opinion of Rust Felix, CEO at Slope.io, supports this point of view:

“The main part of attracting an investor is ensuring the product you build actually solves some real-life problem. I’ve seen too many teams that don’t do deep enough customer discovery to make sure there is a target audience for their product.

After they launch, it becomes clear they did not spend much time talking to their customer and their product is not perfect. As a CEO I spend half of my time talking to the customers, interviewing them to be able to build the product that actually helps them.”

Mary Matthews, Founder at Memrica, told us her advice:

“1. Present a clear and important problem with how your solution addresses that.
2. Present a clear strategy for making money from your product (who pays, why they’ll pay, how you’ll reach them as well as the business model).
3. Find investors through networks, personal contact and services like Angel List or Venture Giants.”

Orlando Policicchio, CEO and Co-founder at CompanyMood advised how to find investors in Germany:

“Start from:
- Know your strategy and goals to define which investor and amount of money you need;
- Visit as many pitch and startup events as possible;
- Try to contact a VC or business angels network in your region;
- Schedule as many meetings or calls as possible to get comfortable be evaluated by investors;
- Be sure you know what your churn rate, burn rate, CAC and other keydrivers are;
- Be sure you know your market and competitors;
- Listen and try to understand what’s the point behind critics or investors you couldn’t convince;
- Present your team and it’s strength;
- Create a list with all investors you’ve met and update them regularly with new numbers and successes.

When it comes to the pitch:
- WOW your audience;
- Prepare and train your pitch performance;
- Be sure all relevant informations are in your pitchdeck;
- Ask at least 5 persons for feedback before sending the pitchdeck out;
- Make sure you have not more than 12 pages of pitchdeck;
- Be brief and precise, don’t use too much text on the pages.”

Erik Swart, Director of Product Management at Trust Science has the following opinion:

“ any investor will be looking for a solid business plan, including market forecast, product plan/roadmap, product differentiation and running expenses. In simple terms, what is your product, how it is unique, what & how long to build and who will buy it.”

The only downside of this approach is the need to give these investors some equity, so the control over the product development and resource allocation becomes less fluid. In the case of seed funding, losing the money of your relative or friend will obviously be quite damaging for your relations. However, the choice between losing some part of the product revenue and getting none at all is quite obvious — yet angel investment and seed funding are not the most popular lines of approach to raising the funds nowadays.

Crowdfunding

Another viable alternative is crowdfunding on platforms like Kickstarter, yet this approach has its own flaws and benefits. The main benefit is that such platforms are frequented by geeks, innovators, passionate technology consumers and early adopters of the latest gadgets and apps. They will donate little, but their donations can be numerous.

Their support and word of mouth campaign can result in collecting huge budgets for your cause, yet this poses a very real risk of not being able to deliver the rewards to all the backers on time. In addition, the platform collects some fees on your proceedings, so meeting the campaign goals does not necessarily mean raising the sufficient funding for your product development.

Conclusions on the ways to secure the investment when starting a business

As you can see, there are several perfectly viable approaches to raising a funding for your startup. The choice between them is up to you. Whether you decide to subscribe for governmental startup support initiatives or partake in some accelerator, contact an angel investor or begin a crowdfunding campaign — the world is yours to explore!

From the experience of the startup founders mentioned above, some of the approaches (or several at once) always work. Which one to choose is up to you, but showing the ability to hire the required technology and skills can weigh the tips in your balance more than once. This is why we sincerely recommend securing the technical expertise prior to raising the funding. This will show your potential investors they can trust your ability to deliver on the promise!

Do you have an experience of starting a business and securing the investment? Please share your opinion on the topic in the comments below!