Every entrepreneur needs money to develop his business. Yet, not everyone has available funds on hand, especially when it comes to large sums. Of course, you can always apply for a loan from a bank, but thankfully, this is not the only way out. For startups, a more suitable funding option is attracting investment.
Below, we’ll take a look at the most common options for attracting investment for startups, from angel investors to strategic investors. We won’t discuss family and friends as separate funding sources, as this option is quite obvious.
This article was prepared for us by the Omega’s team, a fintech startup that offers a comprehensive platform for entrepreneurs, a multi-currency business account equipped with European IBANs for international payments, online business registration in the UK, and other business services.
Article Breakdown
Business Angels
Angel investors are individuals who invest in developing companies. Typically, such an investor receives an equity stake in the company and then makes money by selling it at a profit as the startup grows. However, there are also scenarios where a business angel could expect to receive dividends from future profits.
Business angels may be professionals and have a good understanding of a particular industry. Such investors typically build a portfolio of projects that are seen as potentially in high demand.
The best option is to get an investment from a business angel who is interested in your startup’s niche. If the investor has experience in your industry, they can help you establish business processes and generally increase the likelihood of a positive outcome.
Startup Accelerators
Accelerators are specialized express training programs for young startups. The training is conducted by knowledgeable experts who help aspiring entrepreneurs to study the market and target audience, refine their concept, and even meet potential investors.
Upon graduation, participants may be invited to pitch their projects to angel investors and various funds.
Venture Capital Funds
A venture capital fund is an organization that professionally manages investors’ money. It usually invests in startups that have a clear growth potential. Venture capital funds rarely invest in early stage projects because their future is not yet clear. Therefore, it is wiser to look for a business angel in the beginning of your entrepreneurial journey.
However, startups that want to expand and increase their market presence can turn to venture capital firms. The main goal of the latter is to exit the project with a profit in a few years by selling their stake in the company to another fund or a company.
Venture capital funds usually specialize in specific industries, such as technology or finance. Therefore, we recommend that you look for funds whose area of interest includes the niche in which your startup operates.
Investor Clubs
This is the same as Business Angels, but the club is a community that includes many private investors. The advantage of such clubs is that you can find several investors for your startup project at once.
You can find such clubs by searching on Google and social networks such as LinkedIn (search filter by group).
Startup Grants
Various government and commercial funds periodically organize competitions where the winners receive funding for their startup. However, in order to participate, you must meet certain conditions and report on the use of the funds. Please note that such contests are held frequently and are open to everyone.
Strategic Investor
A strategic investor is a company that buys other companies to create synergies. Therefore, this type of financing is not suitable for startups in the beginner phase. The business must be mature, with stable sales and a certain level of visibility: presence at industry events, business contacts, etc.
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