Do you sit and brood at next growth company and need to find an investor for your business idea? Read on. In this article, we answer five frequently asked questions that entrepreneurs ask themselves when they are looking to find professional investors for their startups, so-called Business Angels.
1. What does it mean to bring in an investor?
Let’s start with the basics. When you bring in an investor in the form of a business angel, you sell part of the shares of the company. The money you then use to develop the company. If you have a startup growing, you can make several investment rounds. Then you raise capital in installments, as the business grows and you burn the capital.
2. What are the pros and cons of picking up an investor?
A common alternative to investors is to take a loan at a classic bank. There are several advantages to taking in an investor instead.
In many cases, investors involve more flexibly than a loan and if you have a good relationship you can get supplements when the company reaches its goals, or to fund specific projects.
Many investors are active in the companies where they placed money. Since business angels usually have extensive experience in developing companies, you get a valuable sounding board that will help you make strategic decisions. You also do not have to pay interest on the money and can spend them on building the business instead.
The downside is that you give up some of the shares in your company; if you sell more than 50% of the shares, you lose control. Even if you keep a majority of the shares, a new partner will want to see a return on their money and the pressure on growth will be greater. When you then reach success and your startup grown into a “unicorn”, the investor’s part of the cake will be well much larger than the interest rate on a bank loan.
3. When should I bring in investors?
The answer is: well in advance. When I studied entrepreneurship, the professor’s tip was to “raise capital before it is needed”. Then you get a pool of cash and do not rush when the finances begin their.
4. How much capital should I ask for?
The professor went on to point out that it is better to bring in too little than too much capital. Why? Well, the most common reason start-ups fail is simply that the money runs out.
The tip to ensure that one was not asked for too little was to add a zero on the amount. One million will be ten million, two will be twenty. It does sound excessive, and I think we should take the council with a large grain of salt, but take it with us not to underestimate the need for capital in start-up growth companies.
5. How do I find investors for my business idea?
If you decide to raise capital, the difficult thing begins: to find the right business angel. Unfortunately, they do not stand on line to throw money at you. On the contrary, so you can expect to compete with other entrepreneurs. But let’s not go the events in advance, how do you even get in touch with an investor from scratch?
Nowadays, there are several ways to find relevant investors for your business idea. But the tip is to Start old school: search your Network. Get in touch with friends who have contacts in the business world. Leaving someone a recommendation significantly increases your chances, as many business angels invest in the entrepreneur as much as the business idea.