How to Attract Investments into Your Startup

No matter how good an idea as, getting the ball rolling for a startup is far from simple. That said, an indispensable necessity that is required for startups to function seamlessly is investment. Capital is probably one of the most essential elements that is needed for a startup to flourish during various phases such as ideation, validation, early traction, scaling and exit options. Startups, upon their inception, seek funding for various needs such as prototype creation, product development, manufacturing, team hiring and expansion, licenses and certification, legal and consulting services, working capital, sales and marketing, office spaces, and inventory. 

However, while several startups opt to bootstrap, which means founders use their own resources that include personal savings, hardware equipment, and real-estate to avoid equity dilutions and debt, it tends to be unavoidable for businesses to not reach out to investors in their scale-up phase. A large amount of funding is required by startups as they increase operations and extend their outreach in the market. Some of the different kinds of investments that startups usually look at are as follows:

Equity financing: Financers gain a portion of equity in the startup in return for capital. While there is no repayment of capital - investors, who are usually angel investors or venture capitalists, take part in the decision-making of the company.

Grants: This kind of financial support is given by the governments, central or state, through their startup support programs. Some large companies and private entities also provide grants to promising startups. There is no return or investment under this, and the entities providing the grants play no role in the decision-making process of the startup.

Debt financing: These are basically loans that are given by banks and other financial institutions. Invested funds will have to be repaid by the startup within the given period of time along with interest. 

How to Attract Investors to Your Startup

Research, Network and Connect with the right set of investors: The startup first needs to network and find out about investors who have similar interests to the products and services being offered by them. Startup investors are usually looking to invest in sectors that they are aware of so that they are able to actively take part in the decision-making process, as well as contribute towards the growth of the company. This also gives investors more confidence about making an investment.

Make an extensive presentation: The co-founders have to ensure that they make a comprehensive presentation that includes an in-depth analysis of the business plan and a reasonable forecast model. This will give an idea to the investors on how well the founders know their market, how they will achieve the numbers and if the company will be able to keep up with the promise they are making. The presentation will have to cover all aspects of the products and services that the company aims at offering, and it goes without saying that the founders must be prepared to convince the investors, when any question is asked. 

Choose cofounders and team cautiously: Apart from the co-founders, investors are extremely mindful of the team that is involved in developing the product and offering services. Introducing the team to the investors and giving them an insight into the skills that each employee holds goes a long way. If the team of the startup can demonstrate how passionate they are about the company and making it successful, investors will feel more confident about investing in the startup.

Know your customers and have a distinct marketing plan: Customers will determine the success or failure of a venture. Hence, it is absolutely imperative to be certain about who the startup is aiming at targeting, and how they hope to take their services to those customers. The startups looking for investment should be able to demonstrate a detailed marketing strategy that shows the targeted campaign strategy, lead generation activities, the tools they are planning on using or anything else that may be required to convince investors.

Be original, and transparent: An investor is wise enough to recognize a startup with potential, dedication of the team as well as the challenge that the venture may face in its scale-up phase. The founders, therefore, need to be true to the DNA of the company, and be honest about the state that the company is in. Being transparent will certainly help investors trust the startup in question.

Exit Avenues: An exit avenue is a contingency plan that should be an option for an investor to liquidate their stake in the startup in return for a profit if the venture becomes successful. Some of the exit options that are widely in practice are Initial public offerings, acquisitions, and subsequent rounds of funding. A startup that can showcase the potential of offering exit options is usually trusted by investors.

The article has been written by Vikas Bhonsle, CEO – Crayon Software Experts India