This is how you find the investor that suits you best!
At some point, many startups reach the point where they can no longer move forward without investment. But when is the right time to start looking for funding? And how do you find an investor that is right for you? I have put together a few answers to these questions for you here.
One thing first: fundraising should never be an end in itself. Sure, it feels great when you get validation and confirmation this way. But at the end of the day, an investment and the associated capital is nothing more than a tool to help you reach your goal. I know many founders who have been successful on fundraising tours. They have all thought very carefully about whether they really need an investment and if so, why. My advice to young teams in particular is to “bootstrap as long as you can” – pursue your goal under your own steam for as long as possible. When the time comes, plan your fundraising carefully.
Preparation is key
The general rule of thumb right at the start: when it comes to fundraising, YODA is what counts most. I give most teams the same advice: “Numbers and data are the duty, storytelling is the freestyle.” If you cannot handle the duty, then you do not have to worry about the freestyle. If you do not have customer and revenue numbers to back up your story and forecast, then you don’t even need to open Google Slides or Power Point.
Be prepared for a longer process in finding the right investor (even if some entertainment formats portray it differently). I personally do not know any team that walked into a room, pitched for five minutes, and then got the check from a complete stranger. Much like team building, fundraising is about building trust and a relationship. You should know exactly what you want and see eye-to-eye.
Also, consider where you want your company to go and how much creative freedom you are willing to give up? The type of investor can strongly influence the development of your company. Often, the financial injection comes with rights of co-determination and control. And finally: How much money do you actually need? This also determines the choice of the right investor.
What types of investors are there?
Once this has been clarified, you know in which direction you need to look for an investor. Your own reserves and savings are initially an obvious solution, but often only if your business idea can be realized with manageable funds. Be careful to separate business and private matters to avoid disputes and disappointments! In addition, there are governmental, institutional funding programs, such as universities, that support startups through financial aid. These programs can be a good way to get ready for an investment.
Business angels are a good option if you need a small to medium sum and are looking for investors who are enthusiastic about your idea. Good angels will support you with their experience as advisors and are open to new approaches, but of course they also want to make a profit despite all their enthusiasm. In order to be able to support you, they usually demand co-determination, information and control rights. Venture capitalists, on the other hand, invest from large to very large sums. Just like angels, they demand company shares and corresponding rights. The difference: Here you are more likely to meet people who do not invest their own money but invest for a fund. Their goal: to get out after a given period with a significant profit.
An alternative for medium to high sums is Crowdinvesting. A large number of investors contribute a smaller amount, but usually do not even have a say in the process.
Trade fairs and conferences are a good way to get in touch with investors, as are social media and participation in competitions. Also, activate and expand your network.
My tip: Choose smart!
Once you have made contact, check critically and confidently (!) whether you are a good match. Generally, you should pay attention to get “smart money” – in contrast to “dumb money”, where you are only a good investment or yield chance for an investor. Such an investor often brings difficulties with his money. In the best case these are unrealistic expectations or unrest in your team due to special requirements or reporting, but in the worst case your IP (your intellectual property) or your entire company could be in danger. In such deals, you are usually better off without an investment.
Important questions besides the simple “how much money give how many shares” are also: Can the investor participate financially again in the next round? Can the investor use his network to make an important contribution to putting together the investors for the next financing round? I often experience that investors promise a lot before financing, but deliver little.
“Smart” investors, on the other hand, stand out because of what they deliver in addition to the monetary investment. Especially experienced business angels and investors who can help you with their expertise, their network and their knowledge are valuable. When looking for investors, always be aware of what you are worth. With a strong product and business model, the world is open to you, make something out of it!
Author: Tim Lampe
Tim Lampe is Head of Operations at Campus Founders and, together with his team, develops the offerings and teaching formats that holistically accompany startup teams on their entrepreneurial journey. Prior to Campus Founders, he was involved in several startups in consulting, SaaS, education and co-living and also spent a year in Silicon Valley.