When funding your startup business, there are many places to turn. It’s common for entrepreneurs to start with their personal savings and a commercial loan from a bank to provide startup funding. If there’s still a gap to fill, you may need to approach an outside investor.
There are a few types of investors you can consider:
Identifying potential investors is just a small part of the task. Making sure they are the right fit is the next step. Your initial conversations will need to prove that you and your business will be worth their investment. Depending on who you’re asking, the way you accomplish this may be different. Let’s explore some tips for how to approach each type of investor.
Your close friends and family members may be some of the easiest people with whom to have this conversation. They will be more willing to invest in you based on a personal relationship, but you still want to make sure your ducks are in a row. Here are some tips for approaching your family and friends to invest in your startup:
Are you willing to offer them an ownership stake in your startup business, or do you want them to provide a loan for you to pay back with interest? Explaining this up front will make for a smoother conversation.
There’s a good chance that your close circle aren’t experts on what you’re selling, and they’re not professional investors. So they probably won’t want to read a 50-page business plan with market research and projections. Instead, boil it down to what you want to do, how you plan to do it, and how the startup money will be used.
Be cognizant of the level of investment you are asking for: Unless you’re making your presentation to a wealthy relative or friend, you’ll want to make sure you’re not asking too much from any one person. If you need $10,000 or more to get started, it may be wise to ask for smaller amounts from several people.
An angel investor is typically a professional investor with a high net worth, so you will need to be more professional with your presentation. Finding the right fit with an angel investor is going to take a bit more preparation since they usually have more business experience. Here are some tips:
Before approaching an angel investor, do your research to learn about what types of projects they invest in. Find an emotional connection between them and your product. Maybe it's something you know they have invested in before. Or maybe it's a service that provides a solution to a challenge they are facing in their other businesses. Whatever it is, if you can get them to invest emotionally, it will be much easier to convince them to invest financially.
Angel investors want to see the full business plan. You’ll have to show them that you’ve researched the competition, ironed out your projections with realistic expectations and know where every dime of startup money is going. Many angel investors will want to make a profit on their investment, so you’ll need to show them how that will happen.
Read More: How to Get Started Writing a Business Plan
You’re casting a wide net when you turn to equity crowdfunding for your startup business. Raising money this way is done online through crowdfunding platforms like Kickstarter and Fundable, and it allows people to contribute small amounts of money toward your startup business or a new product you’re developing.
Crowdfunding gives you the opportunity to raise hundreds or even thousands of dollars in a short amount of time. While the fundraising potential is high, there are still some tips to keep in mind to increase your chances of success:
Those chipping in to your crowdfunding campaign will want something in return. Based on the amount of money they contribute, this could be the finished product that they helped fund, branded merchandise like T-shirts, or some other kind of experience that makes their investment worth the money.
Your product isn’t just a product; it’s an experience, a solution or maybe a luxury. Crowdfunding means appealing directly to the consumer, so make sure your campaign shows them why they need your product or service. Using professional videos and photography on the campaign website and on social media will help showcase your story to potential investors and help them feel confident in the investment they’re making.
It’s not enough just to launch a campaign on the crowdfunding website. You have to make sure people know about it. Tell your inner circle about the campaign and get the word out on social media. For the best results, invest in paid social media ads.
Startup funding is a challenge, but there are many ways to find the right investors for your business.
Our commercial bankers have access to many resources, such as the Small Business Development Center, that can help you get your startup business funded. Meet with one of our commercial bankers today and begin the process of funding for your business.
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