If you have a startup and you would like to attract investors, you need to find a means of narrowing down the investors to those who are more likely to support your type of business. You also have to understand the current stage of funding that you require.
The following provides some information for both businesses seeking investors and for investors to help both find suitable partners.
Types of Private Investors -
In order to find out which businesses investors are supporting, you also need to know the different types of investors for startups. According to Forbes Magazine, there are five different types of investors. Each has a different focus.
Banks: Banks will fund businesses that have a strong track record and a well-thought out and delineated business plan. They tend to only lend to businesses who have already established their revenue stream, or the owner has collateral. Small Business Administration loans are actually administered by the banks, so the process of receiving a loan from them is much the same.
Angel Investors: Angel investors will loan to those in an industry that need seed money early on but don't require the involvement of venture capitalists. An investment of this type is typical in the very early stages of a business and are more of an investment in the businessman and their idea rather than a proven business.
Peer-to-Peer Lenders: These investors specialize in providing small loans through peer-to-peer platforms, such as Prosper and Lending Club.
Venture Capitalists: When businesses begin to produce more revenue, they look to venture capitalists to infuse their enterprises with larger amounts of funds, often in exchange for some stake in the company. Since these are usually much larger investments, the venture capitalist often assumes some form of participation within the business itself.
Global Entrepreneurship Monitor -
A great source of information on investors and the types of businesses they are supporting is found in the yearly report from the Global Entrepreneurship Monitor. The GEM is a project by Babson College in London that produces a yearly analysis of entrepreneurial activity in many countries around the world, including the U.S.
Entrepreneur Magazine reports that GEM discovered the vast majority of entrepreneurs did not receive any funding from private investors. Instead, most entrepreneurs in the country derived their startup funds from family, close friends and colleagues from their work. Only 9 percent of entrepreneurs were able to get funding from investors such as angel investors and venture capital organizations.
AngelList allows startup owners to browse different private investors to ensure they are a good fit for your enterprise and that they invest in businesses like yours.
Angel Capital Association -
The Angel Capital Association will not fund organizations. Instead, they have a database of over 14,000 angels. They also produce the Angel Funders Report and the American Angel Campaign. One is a yearly analysis of 68 angel organizations and what they learned making 1,170 investments. The other is a report that analyzes who angels are, where they are located, how many organizations they tend to invest in and their level of business expertise.
Angel's Den -
Angel's Den allows entrepreneurs to register their businesses for consideration by angels. There are a few introductory questions that need to be answered so that the entrepreneur's enterprise meets the minimum standards of Angel's Den's investors. Then, you will submit an online pitch for the angels.
Crunchbase is a commercial database that includes information on public and private companies. Each company listing includes information on the founding members of the organization, their investment and funding information, any mergers or acquisitions and news and trends in their industry.
According to Matt Kaufman, the Head of Operations at Crunchbase, businesses looking to pitch investors are using the Crunchbase business database to find businesses that are the same type as theirs and see what investors funded them. Then, they can carefully target those investors. To get an example of the type of information available through this platform, you can examine Crunchbase profiles like this one about Fisher Investments.
Others find that by using advanced search capabilities on LinkedIn, they can find suitable investors. One strategy to approach potential investors is by reaching out to another of their contacts and then asking for an introduction.
Of course, you can find out who is supporting different types of businesses locally by networking. Entrepreneurs who are active in their community and their industry organizations will find this task much easier.
Apply to Accelerator Programs -