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How to choose the right investor for your startup?

Howw to find investor for your startup

Not every investor is a good fit for every project, so take your time to find a perfect match

So you've decided to take your startup to the next level and find an investor. Congratulations! This is an important step in growing your business. But with so many investors out there, how do you choose the right one for you?

There are a few things to consider when making this decision. First, you need to ask yourself what you're looking for in an investor. Do you need someone who can help you scale your business? Or are you looking for someone who can provide connections and advice? Once you know what you're looking for, it's time to start doing your research.

There are a lot of factors to consider when choosing an investor, but don't get overwhelmed. Just take it one step at a time, and you'll be able to find the perfect fit for your startup.

Types of investors who fund tech startups

When you're launching a tech company, the most important thing you need is money. You need to invest in your product, your team, and your marketing. And that's where investors come in.

But not just any investor will do. You need to find the right investor for your startup. And how do you do that? By understanding the different types of investors who fund emerging businesses.

Here are the four main types of investors you'll find in the tech startup world:

1. Venture capitalists

2. Angel investors

3. Corporate investors

4. Family and friends

Venture capitalists are professional investors who invest in high-growth companies. They tend to invest large sums of money and they typically want a seat on the company's board.

Angel investors are wealthy individuals who invest their own money in startups. They're typically more hands-off than venture capitalists, but they can provide valuable advice and connections.

Corporate investors are usually big companies that invest in startups to get a new product or technology. They may also invest to keep a competitor from getting ahold of a new technology.

Family and friends are, well, family and friends. They're typically the first people you'll ask for money when starting a company. And while they may not have deep pockets, they're usually more forgiving than other investors if things don't go according to plan.

Four types of investors
Four types of investors

Certain investors at a certain stage

When you're ready to take your startup to the next level, it's time to start thinking about investors. But how do you know which investor is right for you?

You should decide how to get investors for your startup depending on the available resources and plans for business growth. However, there is a generally accepted scheme for attracting investments depending on the stage of business development.

Early stage: pre-seed, seed

The amount of funding - up to $100,000

At the pre-seed stage, the founders determine the problem of a specific audience and come up with a solution to it. It doesn’t get to the prototype or MVP yet, but the conceptual basis of the product and an idea of ​​how to conquer the market already exist. The costs incurred at the pre-seed stage are mostly covered by the founders' personal funds.

At the seed stage, the founders already have MVP, customer feedback, and the confidence to move on. This is the time of the product's active promotion and the audience's rapid growth. Founders' funds are no longer enough, so they attract private investors, business angels, and seed investment funds.

Growth and expansion: Series A

The amount of funding - from $500,000

At the Series A stage, a startup is actively growing, increasing its customer base, implementing new features, and looking for new investments. At this stage, big venture capital market players come into play. They are investment funds ready to give big money in exchange for a share in the promising enterprise.

Startup maturity: Series B,C,D

The amount of funding - from $1,000,000

Late investment rounds serve mature tech startups with an established market value and proven development strategy. Traditionally, each investment round has its own task:

  • B - scaling

  • C - return on investment

  • D - attracting a strategic investor

Note, that a startup can raise funds by following investment rounds one by one or by combining or skipping some of them. Also, several companies can act as investors fora startup simultaneously.

Series B,C, D investors are often the same startup business investors who led the Series A round, i.e., big venture capitalists and investment funds.

Exit stage: IPO, takeover, sale

The amount of funding - from $7,000,000

There are three startup exit strategies:

  • takeover (acquisition) or merger

  • public offering of the company's shares (IPO),

  • full or partial sale of the company

At this stage, the startup investors are the new owners, who partially or completely undertake the company management.

Startup development and investments
Startup development and investments

How to ensure investors are a 100% match to your project: 10 criteria

When you want to find an investor for a startup, you may be tempted to accept the first offer that comes along. However, no matter how badly you need the money, it's necessary to take your time and evaluate a potential investor from the perspective of a future partnership. After all, this is someone who will play an important role in your business, so you want to make sure that you're compatible.

As a beginner entrepreneur, you may find it challenging to correctly evaluate investors for your startups. So, here are 10 criteria to help get you started.

  • Product vision. Are you on the same page with your investor about the overarching long-term mission of your product?

  • Industry experience. Are your investors aware of the work details in a given field?

  • Company reputation. Do the investors have a proven track record of success?

  • Financial situation. Are they financially stable?

  • Business maturity. Are they available to provide mentorship?

  • Human resources. Are the investors willing to put in the time and effort to help your company grow?

  • Investment philosophy. Whatbeliefs and principles do your investors follow?

  • Legal compliance. Do they have a transparent scheme for receiving and investing money?

  • Partner reliability. How well do you know them? Will they be a long-term partner?

  • Communication style. Are they easy to work with?

MVP as a way to attract investors

There are thousands of startups worldwide, and each of them is wondering how to find investors for business development. The easiest way to do this is to prove the validity of your idea. You should show investors that your product is needed by users and that it has a big chance to be successful in the market.

One way to do this is by developing an MVP (Minimum Viable Product). An MVP is software with essential features, which allows you to test the market and get feedback from users. This is an important step because it helps you focus on the customer and ensure that you build something that people want to use. 

A successful MVP makes it easier to get investors on board because they know that there is a good chance of making a return on their investment. And if you want your MVP to coincide with a defined product vision, make sure it is developed by a team with proven domain expertise.

Conclusion

Choosing the right investor is an important decision for an entrepreneur, and it's one that shouldn't be taken lightly.

You should select investors depending on the particular stage of development of your company. Are you still in the early stages, when you're just getting started and you haven't yet made much progress? Or are you further along, have already generated some revenue and have a solid product?

If you're at the beginning of the product development path, then you want an investor who can help with things like recruiting, marketing, and strategy. They should also have experience working with startups and be able to offer advice and guidance.

If the early startup stage is over, then you'll want an investor who can bring more than just money to the table. They should be able to help with things like scaling up your business, expanding into new markets, and accessing new customers.

No matter what stage of development your startup is in, potential investors will want to make sure you have a professional development team in place. If you're looking for one, get in touch. We will be happy to help.

FAQ

Q: How do I know if I need an investor?

A: This is a question you should ask yourself early in the startup process. Do you have the money to sustain yourself and your company for at least 12-18 months? If the answer is no, then you'll likely need to find an investor.

Q: What are the most important factors I should consider when choosing an investor?

A: There are a few key factors to keep in mind when choosing an investor. First, make sure the investor has a good understanding of your industry. Second, check to see they have a solid track record of success with startups. And finally, ensure they're aligned with your company's values and vision.

Q: What's the process for finding and vetting potential investors?

A: The process for finding and vetting potential investors can be time-consuming, but it's worth taking your time to find the right person or company to invest in your company. Start by researching potential investors and narrowing down your list to a few that are a good fit. Then reach out to them and ask if they're interested in meeting with you. Once you've met with them, it's important to do your due diligence and make sure they're a good fit for your company.

November 10, 2022