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How to find an investor to start a business from scratch and for a startup a step-by-step instruction

Hello! In this article, we will tell you how to find an investor.


Today you will learn:

  • Methods for finding an investor for your business ;
  • What can interest potential investors;
  • How to find investment for a startup


What is an investor for?

We all correctly understand that the initial stage of creating a business is costly.

And regardless of the scope of activity, most of the costs will be:

  • To a suitable room;
  • On the necessary equipment;
  • On the search for employees.


Then, depending on the specifics of the business, there will be other costs:

  • Additional software;
  • Room repair;
  • Purchase of consumables;
  • Etc.


And in most cases, the initial costs are so significant that pulling them alone or even with a team becomes very difficult.


In addition to the initial costs, many companies feel a shortage of money for full and harmonious development. There are often cases when the prospects for a young team are huge - their goods or services are really in demand in the market, but because of lack of finance, they lose the lion's share of profits.


How to find an investor to start a business from scratch and for a startup a step-by-step instruction



For example, they cannot hire additional employees, purchase more equipment, expand a room, etc. That's when they need an investor in the operating business.



How to find an investor for business from scratch

Before proceeding to the practical part of the search for an investor, one should decide on a couple of theoretical points. Knowing the investor's wishes, you can understand how to look for it and what it needs to give.


When looking for an investor, it is essential to remember one detail:


Investing involves making a profit; this is a golden one rule that should be in the mind of every business owner who wants investors in his business. No one will be interested in "innovative breakthrough," "original idea," "new technologies" if they do not promise tangible profits. All investors need to speak the language of money and risks. Only then can they be interested.


Based on this rule, we can distinguish the following:


  • To receive money, you need to convince the investor that his investments will be profitable;
  • You need to prove why your project is more interesting than direct competitors;
  • Show what prospects you have for further development in the market.


Investors who are engaged in this profession can literally in 10 minutes determine whether the project will be profitable or not. And when they invest in the business, they do not do charity. The only motivation for investments is to get a quick profit, which should be higher than the average bank deposit and the lion's share of competitors.


From this, it follows that the main task is not to find a private investor but to interest him by convincing him to invest his money in your project.


What information might interest investors

Based on an understanding of why people generally invest, one can begin to answer questions that may be of interest to a potential investor.


But before that, you need to understand one simple thing:


You do not need to perceive an investor for business as a lender. He voluntarily invests his funds, and if they fail, they will not return to him in any way. That's why, for beginners, an experienced investor will be a partner who will be able to help in case of small failures and will share the success.


That's why you need to work not only for your good but also for your business partner. You invest your ideas, strength, time, money (to a lesser extent), while the investor invests his money, participates in making important decisions for the company.


It is a kind of shareholder who has the right to vote, to which one must listen but do not always go for a reason. Observe the balance between the interests of the company and investors is very important.


So, you found a person who is interested in investing in your company.


What does he need to tell about business:

  • The main idea of business;
  • Required investment;
  • Estimated yield;
  • Risks.


This is all you need to know the investor at the beginning of your cooperation. When he evaluates the volume of the proposed investment, he will compare the profitability and risks. If he likes your idea, then the second stage will begin - a detailed survey about the business.


That's when you have to reveal all the details: why your idea is better than the competition; how are you going to spend money and on what; when the business will expand, and to what extent; what guarantees can you give and other questions.


It should be understood that spreading all the trump cards at the beginning is not the best idea. It is possible that a person will not be interested in business in this area or realize this idea himself.


Profitability for the investor

For the investor, this is the minimum indicator of profitability, which he can get by simply putting his money into the bank account. Consequently, a business person should show profitability at a distance higher than a bank deposit of 1.5-2 times. This is typical for small and medium-sized businesses. For large - income in the amount of bank deposit is possible because of the scale and prospects for rapid expansion.


Let us sum up: the investor is primarily interested in the profitability of his investments.


That is why, before investing money, analyze such parameters: 

  • Promising idea;
  • Required investment;
  • Risks and profitability.


If these points suit both sides, then there is a further stage of negotiations, in which the investor tries to get the most detailed information about the business and assess its prospects. A competent business plan can answer all the questions that may arise in the negotiations; therefore, its compilation is compulsory.


Where to look for an investor for a business or a startup

With necessary information about what you can tell the investor figured out. Now about where you can find an investor.


Close people, friends, acquaintances

One of the most controversial ways to raise funds. Suitable for creating a small business, promising familiar people returns on their investment when the company starts to bring in revenue.


Simultaneously, among friends and acquaintances, you can find like-minded people who may become interested in the idea and create a whole team that will share all the financial losses and compensates for each other's shortcomings.


You can borrow money from relatives to open your business if you need a small amount, and there are no guarantees of its return.


Foundations

There are two types of funds that can help find business investment: small business promotion funds and investment funds. Regardless of the type, it will be challenging to obtain funds in such funds.


Investment funds are interested in only one thing: profitability. They are ready to invest their money with significant risk into enterprises that will bring them a hefty income. But if a business person talks about a long-term investment, not guaranteeing profits in the first few years - such a business is unlikely to be financed.


To assess your own investments prospects, the fund will need time and the full information you can provide. Analyze will be a group of analysts, so the more information, the higher the chances of receiving cash.


These investment funds often have less money available than a few private investors who are also ready to invest their money in interesting ideas, if only they are interested. But it is worthwhile to understand that it is much easier to apply for investment in an investment fund than to a private investor, because for the first one you will need to contact the company, and in the second case - somehow to find contact with a very famous and wealthy person.


Public funds are one of the most profitable options for obtaining cash if the idea is genuinely innovative. Periodically, competitions are held, the winners of which can receive a grant, to which entrepreneurs can realize all their ideas. To get state support, if there is such an opportunity - this is the best option.


Successful businessmen

One of the best and most profitable ways to find investments is working with a city or region's successful business people. Regardless of the scale, you can find many successful businessmen who have already passed along this path in the region and have profitable enterprises and free cash. It will be enough to interest them with their idea, and their personality, and then they will invest their money in an interesting project.


At the same time, one of the obvious advantages of working with successful businessmen is that they can teach and explain some points through which they went through. Many entrepreneurs gladly take under the patronage of beginners, explain to them how to cope with difficulties, minimize expenses, and profit. Especially if cooperation can in the long run, benefit both sides.


Cooperation usually takes place under two conditions:

  • In the form of a loan;
  • In the state of buying a share in the business.

The second option is preferable for both sides. He assumes the investor's participation in the development of the company; this makes it possible to avoid the majority of mistakes and take advantage of the connections and relations of a more influential person to establish oneself.


If a business person cannot help with finances, it is advisable to ask him who he knows can help and become interested in the idea. Such a small psychological trick will allow you to learn about other business people, and with a recommendation from one of your colleagues, you will be able to count on something more.


Banks

If all of the above ways of attracting investors did not work, you need to apply for loans to banks. Different lending institutions make different demands on potential borrowers, but their essence is as follows:


Banks do not need maximum profitability. They are interested in the stable receipt of funds and the return of the loan. That is why credit organizations will study your business plan for stable income generation and, accordingly, return of funds. They are more interested in guarantees than in returns.


It is dangerous for an inexperienced businessman to take a loan from a bank, especially if the business idea is risky enough. If the idea does not burn out, the bank will demand the full return of funds, up to the realization of the borrower's property.


That's why it's worth borrowing for a small business that will pay off in 4-5 months and then be able to generate revenue. And if it does not work out, the financial blow will not be so strong as the loss of money for the realization of an average or large project. 


Venture investments

One of the most popular and effective ways to attract funds for business in innovative areas. Venture investments are investments of venture capital funds (investor associations).


The nature of venture investments is their high risk. They provide money to many companies that can change the world with their innovative ideas.


Venture funds can also finance ordinary entrepreneurs. But the main condition will be dynamic development and constant expansion.


Venture funds are a kind of motivation for the constant expansion of business, spheres of influence, and products. The most striking example of a company that existed at the expense of venture funds is Apple.



Investor search: step-by-step instruction

Now we publish a detailed and step-by-step plan on how to find an investor for starting a business:

Step 1. Drawing up a business plan.


As mentioned earlier - a good business plan for an investor will always bring a few advantages to a businessman's piggy bank.


What should be in the business plan:

  • Description of the idea;
  • Economic calculations;
  • Payback period of the project;
  • Development prospects;
  • Analysis of competitors;
  • Other information.


When drawing up a business plan and its subsequent presentation, you need to carefully concentrate on all the little things. We need to pay attention not only to all the information inside, but also to our appearance, the presentation of material, confidence, etc.


The use of tables, graphs, and other graphic materials is only welcomed. They help to better perceive information, focus on the right moments.


It is not out of place to rehearse the presentation of the business plan at home several times. Also be ready for additional questions.


Step 2. Choosing a form of cooperation.

Before you start looking for an investor, you need to decide on the proposed model of cooperation. Of course, you can completely rely on an experienced businessman who himself will offer an interesting way of interacting with business, but then you lose the dominant position. Do not forget that the investor does not dictate the conditions, but the businessman.


There are three ways of cooperation:

  • Obtaining a percentage of the amount invested in the business;
  • Receiving a rate of the profit for a period of time the action of the whole business;
  • Getting a share in the company.


Having chosen the way of cooperation he is interested in, a novice businessman should indicate this way of cooperation in his business plan.


There are cases when investors do not agree with the chosen model of cooperation. You should analyze this situation and understand whether it is worthwhile to go on about the more experienced businessman, or better to insist on his own.


Sometimes it's better to give up your principles and get money for the project, and sometimes give up the offer and find another interested person.


Step 3. Search for an investor.

After all the preliminary work is completed, it is necessary to proceed to the procedure of investor search. We need to work on several fronts, establishing contacts both in the sphere of entrepreneurs and investors, and asking our friends.

Working on the above list, you will be able to try out various options for attracting investments, and if nothing happens, you should contact the bank.


Step 4. Negotiations with potential investors.

It is desirable to find several interested persons who would be willing to invest free money in the development of your idea. Then you can negotiate from a position of strength and dictate terms. But newcomers rarely find more than one or two interested people, which is why you should approach the negotiation process very carefully.


Convince the investor that he will make a profit is the main task of these negotiations. In this case, it is worth remembering that they will look not only at the prospects of your project, but also on you, so it's worth keeping an eye on your speech, appearance, and manners.


It is advisable to answer all questions that will arise with potential investors. This will give a guarantee that you are really working out your business idea, and at the implementation stage, there will be no silly mistakes.


Negotiations are the most important part when looking for an investor.


Step 5. The conclusion of the contract.

After the negotiations have been successful, you will need to conclude an agreement with the investor. It is advisable that you attend to the creation of the contract yourself and in advance. Seek this should be an experienced lawyer, who will be able to draw up a treaty beneficial for both parties.


Important points that should be in the contract:

  • Term;
  • Amount of investments;
  • Form of cooperation;
  • Rights and obligations.
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