- Private investors
- Friends, family, and networking
- Incubators and accelerators
Finding investors is not easy, especially for startups. Startups struggle to find investors because the idea might not be profitable yet or because it’s too early for a venture capitalist to get involved.
While innovation is important, it stalls without the necessary capital. Unfortunately, many startups fail because they don’t have enough capital to survive.
Luckily, there are plenty of ways to find investors. Several methods will help you find the money you need but some are better than others. We’re going to take you through the 10 best methods to help you narrow down your options.
The best way to find investors is to use a reputable database like AngelMatch. However, there are also other methods worth considering. The 5 best options are listed below.
Going through private investors is the best method to get funding for startups. With private investors, you have the most options and flexibility. Additionally, unique agreements are possible and more likely when you use private investors.
We’ll take you through the types of private investors and how each type contributes to startups.
We’ll start with angel investors. Angel investors are individuals or a collection of people who invest their money in a startup. These investors don’t offer as much as venture capitalists but will offer startups money when venture capitalist swon’t. Therefore, startups benefit the most from angel investors during the pre-seed and seed funding rounds.
When angel investors invest in startups it’s in exchange for equity or convertible debt. Because it’s less money than startups, angel investors typically don’t gain enough ownership to make decisions for the company. Keep in mind that this varies on the value of the company and the amount they invest.
Using venture capital is another way to secure funding for a startup. Venture capital is typically available during the Series A or Series B rounds of funding. So, new startups don’t always have access to venture capital. For this reason, venture capitalists often invest more money because there is reduced risk.
Venture capitalists also invest for their benefit. They’ll often own shares, convertible debt, or a stake in the startup. Furthermore, venture capitalists bargain for enough shares to make decisions for the company. Depending on who you are, it’s best to weigh the pros and cons of venture capital.
Finding angel investors or venture capital is not always easy, especially when you lack a professional network. Therefore, it’s always a good idea to use a reputable database like AngelMatch to connect with investors.
A great way to gain funding is by networking with friends and family. In some cases, family members and friends have enough capital to back a startup in exchange for equity. Depending on the person, friends or family members might not want anything in return.
While borrowing from friends and family is helpful, it’s not always the best approach. This is because friends and business don’t always mix well. So, there are some drawbacks to consider when asking friends and family for startup funds.
Still, there are other ways to network. Social media platforms are a great example; platforms like LinkedIn exist for the sole purpose of connecting people. Another great platform to use is Facebook, which has a whole section for businesses and networking.
At the end of the day there are dozens of social media platforms and online applications, so choose the best one for you. Don’t be afraid to try them all!
Incubators and accelerators are useful for startups but they’re not easy to come by. Many incubators and accelerators require a rigorous application process and you might need connections within academia or non-profit organizations. We’ll compare the differences between incubators and accelerators below.
Incubators focus on the early stages of startups –like the pre-seed rounds and seed rounds of funding. Companies that don’t have solid structures or business plans benefit the most from incubators because they’ll provide the necessary resources.
That said, incubators also focus on the networking aspects of startups. They’ll help startups connect with angel investors, managers, and other successful people in the industry.
Ultimately, incubators help early-stage startups with financial resources, technology, and networking tools.
Accelerators are different from incubators because they focus on startups with an established product or business plan. These organizations help by providing startups with financial resources, shared working spaces, and mentorship.
Keep in mind that accelerator programs will often invest capital into a startup. The capital is then converted to equity as the company continues to grow.
Crowdfunding is one of the most common ways for startups to acquire funds. Several types of crowdfunding exist, with the majority of options being online. Ultimately, crowdfunding is a tool startups use to gain money from large groups of people.
Equity crowdfunding is a popular crowdfunding option because investors receive shares in the company. The amount of shares (or equity) that an investor gets depends on how much money they contribute.
For these reasons, equity-based crowdfunding has limitless earning potential. As a startup founder, though, prepare to give up some ownership of the company before proceeding.
Peer-to-peer lending is another variation of crowdfunding. Also known as debt-based crowdfunding, peer-to-peer lending involves loans from people. These loans come with an interest rate and you need to pay them back.
Peer-to-peer lending is effective but risky if the startup is too new. Unfortunately, many startups go bankrupt because they’re unable to pay back debt-based crowdfunding loans.
Reward-based crowdfunding involves rewards for investors who invest in a startup. These rewards vary and there are usually multiple types of rewards. For example, someone who invests a few dollars will receive a shirt, whereas bigger investments earn investors unique products.
A benefit of reward-based crowdfunding is that you don’t need to pay anything back. Just make sure you have suitable rewards to gain the interest of wealthy investors.
Another way to raise money for a startup is to ask for donations. Asking for donations helps you acquire capital through people who want to help your company for nothing in return. In fact, the biggest benefit of a donation is that you don’t always have to pay it back.
There are a few places to get donations, so it’s best to try a few places. The best online donation platforms for startups include the following options listed below.
When requesting donations, make sure you follow the necessary guidelines to avoid problems. Never use the money for anything that it’s not intended for.
Yes, there are other ways to secure capital for startups. If finding investors isn’t possible, try to apply for a personal loan or small business loan. These loans need to be paid back and you need to have good credit to be successful.
Small business loans are loans for businesses. These are smaller than corporate loans but provide business owners with financial capital to invest in the business.
Small business capital is used for the acquisition of real estate, technology, hiring staff, renovations, and infrastructure. Interest rates vary based on several factors like credit history, assets, and total debt. The ability to get a loan also depends on your business plan, revenue, and balance sheet.
Personal loans are another alternative way to raise money for a startup. These are loans taken out in your name, so they will impact your credit score.
Taking out personal loans for startups is risky, especially if you can’t pay them back. This is because you’re liable for the money when it’s in your name and not the companies.
If all else fails, reallocation of assets will help you free up money to invest in your business. Make sure you go through the proper channels to do so, otherwise you’ll face penalties on accounts like 401ks and IRAs.
Reallocating assists is risky because it’s your money. Throwing all of your money into a startup will leave you penniless and exposed to risk.
While the alternative methods to raise funding for startups are effective, it’s always better to start with a resource like AngelMatch. It removes the risks and connects you with thousands of potential investors.
Finding reputable investors is challenging, especially if you don’t have the biggest network. The good news is that AngelMatch solves the networking problem.
Connecting with investors is easy when you use AngelMatch. Having access to a database full of thousands of investors helps you narrow down your options. Plus, you have the opportunity to choose the perfect fit for you and your business.