For many entrepreneurs, gaining a financial backing during the early stages of building a start-up can be a challenge. Stats reveal a mere 1 in 250 emerging start-ups manage to receive venture capital, with the odds being even higher for women-led SMEs.
Results conducted by the Institute of Government & Public Affairs revealed that even after accounting factors such as creditworthiness, gender has a “dramatic impact” on access to loans from banks and angel investors, as does race.
And with such discrimination – as well as lack of financial support – the journey for entrepreneurs is a difficult one. See below for tips on how to attract potential investors and ways to accumulate finance.
How to attract potential investors; it’s not what you know, it’s who you know
1. Network – liaise with the investors in your industry
Ensure you’re in the right place at the right time. Attend network events where all the top dogs in the finance sector are on the guest list. Being regularly cited and talking to contacts, is a great way of getting noticed by investors.
Compile your newfound contacts into a status file; a little black book containing contacts who you’ve met and researched, including phone numbers.
Creating a contact source is a great way of ensuring you’ve reached out to all potential investors. Include notes for each contact, which will cover key information such as previous investments. This will come in handy for when you’re making chit-chat with the experts.
2. Distribute business plans
Having a structured business plan is an essential way of attracting investors. The plan provides potential investors with a summary of your business, your product’s purpose, and target market. It also defines your financial requirements – outlining where all donated investment will go – and exhibits how your business will accumulate the finance to repay back lenders.
Most commercial banks require a business plan as part of a loan application. Your plan must accompany a summary and a pitch, as part of a three-part strategy used to define a gap in the market for your product and win over investors.
Summary – a summary isn’t essential when submitting a business plan internally, but is required when showing a business plan to investors and bankers. It should be clear, punchy and concise, providing a brief introduction of your business, including: financial highlights, product purpose and critical details (achievements, awards, etc).
Once business owners have created their summaries, then they can apply it to start-up platforms such as AngelList to attract investors.
Pitch – this is where you clinch investors. During your pitch, you’re required to deliver a professional presentation, paired with stimulating and effective dialogue.
When pitching your product, project a fully rehearsed proposal that includes: a story, a solution, defined target audiences (TAM, SAM, SOM), and an exit solution.
Ensure your pitch flows naturally to exert confidence in your business model, and to convey familiarity with the ins and outs of your product. This instils trust in potential investors, as does handing out fully structured business plans, whilst pitching, to provide concrete figures and supporting information.
Ways to get funding for SMEs
1. Become 100% shareholder
Break open the piggy bank, or lean on those closest – friends, family- for interest-free loans without the tight borrowing periods.
The most common advice for start-up entrepreneurs from industry professionals is to invest in yourself. Stats reveal that “82% of start-up funds came from the entrepreneur himself, herself or family and friends” – with “77% of small businesses relying solely on personal savings”.
However, compromise financial guidance and advice from experienced professionals by sourcing your own venture. There’s also a risk of losing your personal assets and damaging relationships.
2. Find an angel investor
For if self-funding isn’t feasible, an angel investor – whom specialises in funding small businesses -may be your get-out-of-jail card.
Angel Investors are most likely to invest in small businesses than venture capitalists. This is because venture capitalists only back businesses who’ve a growth history of at least three-years.
Angel investors are single persons who provide finance using personal funds in exchange for convertible debt or ownership equity.
To connect with angel investors, throw yourself into networking circles – as mentioned above – or connect online, via angel investor platforms such as Gust Angel Network.
Crowdfunding is a great way of killing various types of bird with multiple stones simultaneously. As not only does the process invite family, friends, followers and investors to financially support your business, but it also generates hype, engagement and funding! Win-win.
Crowdfunding gives you the chance to tell a story – of which through a marketing perspective works wonders – and reach mass audiences – your business can share the crowdfunding link across multiple social platforms to potentially target millions of users.
A donation page can also gather momentum fast, of which is great for investors to observe and an efficient way of generating rapid investment.
Using crowdfunding sites effectively influences a snowballing ‘pay-it-forward’ effect.
Additionally, donors who’ve contributed to your cause, are likely to follow your growth, from having a personal involvement. This creates a loyal following from the offset, for when your product or brand officially kicks off, you’ve already constructed the building blocks for your empire.
And through analysing your crowdfunding results – by assessing feedback from contributors – you can analyse the types of consumers who’re getting involved and tailor your future marketing branding strategies to them.
4. Social Media
Growing your network of contacts online, is nowadays just as important (if not more) then connecting face-to-face.
Many business founders, investors and industry experts use LinkedIn to keep on top of updates, and to communicate with investors who may be too busy to attend networking events.
Investors like to put a face to a brand, and thus personally representing your product online is a great way of attracting attention from investors.
Moreover, if your posts often provoke likes and engagement, this speaks volumes; if hundreds of others are liking your product then investors too will want to touch base.
Connect with industry professionals across numerous social platforms – not just LinkedIn – such as Facebook and Instagram, where you can visually project your product and branding to gain attention and cajole investors.
Your business project may resonate more with investors online through visual communications such as videos and images.
How did you get your business venture off the ground? Comment below with your own start-up experiences.