How To Find Investors and Funding for Your Startup

Wondering how to find investors and funding for your startup?

Here’s our comprehensive guide to get you started

Starting a business is an exciting and challenging endeavor – and many new founders quickly learn that they need more funding to build their business. 

Without an adequate amount of funding, even the best startup ideas may never get off the ground. A lack of funding can be a major hindrance to the success of any new business venture, which is why finding investors and securing funding is crucial.

There are many expenses that come with starting a business, such as office space, equipment, personnel costs, product development costs, marketing expenses and so on. Without proper financing, it can be difficult for entrepreneurs to cover all these expenses out-of-pocket.

Fortunately, there are several ways to obtain funding for your startup idea! 

This article will explore both traditional and alternative sources of funding that you can tap into to help make your dream a reality. Whether you’re looking for seed capital or a way to scale up your existing business model, we’ll provide you with valuable insights and resources to help you succeed in your entrepreneurial endeavors.

But first, the most important thing to know when looking for business funding or loans:

Investors and Banks need to feel like you are a safe bet. 

These are the primary things they are looking for, when they make this determination:

• Do you have experience in this area?

• How strong is your team and how deep is their experience?

• Do you have a solid financial plan and business plan prepared? (You need these to show that you’re serious and professional)

• Have you done all the research and preparation work you can do already? Or are you unprepared?

• Have you gathered data that suggests you know your market, your customer and have found a good customer/market fit?

Here are the main roads you can consider to get your business off the ground:

Bootstrapping:

If you can bootstrap your business, which means to self-fund it, and build it without taking funding from investors or loans or other sources, do it. You will retain full ownership of your business this way.

Investors:

A good route if you know you need other people’s money (i.e. you can’t bootstrap it, and fund it yourself). You will give away equity in your company in exchange for investor funding.

And this means you will no longer own 100% of your company and the investor will own a percentage typically.

Normally when you agree to give away a percentage of your company in exchange for investor funding, you do not have to pay the investors back if your company does not succeed. It is a risk they are taking in exchange for equity in your company and the possibility of future success.

Loans:

Loans are my least favorite option, because if the business does not work out the founder is stuck having to pay back the loan no matter what.

Crowdfunding:

Crowdfunding is a good option because you do not have to pay the money back, as long as you make good on any promises you have made to the crowdfunding investors.

Additionally crowdfunding is an amazing opportunity to converse with and build relationships with your core customers.

There are a lot of pros and cons to any of these options – which I will discuss in another blog post soon.

Let’s now look more in depth at each of the most common funding sources for a small business:

Traditional Funding Sources

When it comes to funding a startup, traditional funding sources are often the first options that come to mind. These funding sources include bank loans, Small Business Administration (SBA) loans, angel investors, and venture capitalists.

Bank Loans

One of the most common ways to fund a startup is through a bank loan. However, obtaining a bank loan can be difficult due to strict credit requirements and collateral demands. Banks tend to favor established businesses with proven track records of success and stability. If you’re just starting out and have no history of revenue or assets, it may be challenging to secure a loan from a traditional bank.

Small Business Administration (SBA) Loans

The SBA provides guaranteed loans for small businesses including startups. These loans usually have more favorable terms than traditional bank loans and can offer access to capital for entrepreneurs who may not qualify for conventional financing. While SBA loans can be an excellent option for startups searching for capital, they require significant paperwork and documentation before approval.

Angel Investors

An angel investor is typically an affluent individual who provides financial backing for startups in exchange for equity in the company or convertible debt. Angel investors are known as “angels” because they often provide startups with early-stage funding when other sources of capital are difficult to obtain. Notably, these investors are often willing to take on more risk than traditional banks or venture capitalists because of their belief in your idea’s potential success.

Venture Capitalists

Venture capitalists are investment firms that provide capital to high-growth startups in exchange for equity in the company. Unlike angel investors who invest their own money into ventures early on, VCs manage funds collected from limited partners (LPs) or institutional investors. These funds are then used to invest in companies with high growth potential. Venture capitalists can provide startups with significant amounts of capital, but they often require a substantial percentage of equity and control over company decisions. It’s essential to research each funding source and decide which option is best for your startup needs. Traditional funding sources offer stability, while angel investors and VCs can bring more significant opportunities but come with more risk. By understanding these different options, you can make an informed decision when seeking out financing for your startup idea.

Alternative Funding Sources

Crowdfunding Platforms: Turning Your Supporters into Investors

One popular alternative funding source for startups is crowdfunding. Platforms like Kickstarter and Indiegogo allow entrepreneurs to pitch their ideas to the public and receive financial backing in return for rewards, such as early access to a product or exclusive merchandise. Crowdfunding enables startups to gain exposure while simultaneously raising funds from interested supporters. However, it’s important to note that not all crowdfunding campaigns are successful, and it takes a significant amount of effort and creativity to stand out in a crowded market.

Peer-to-Peer Lending: Borrowing from Strangers

Peer-to-peer (P2P) lending platforms like LendingClub and Prosper act as middlemen between borrowers and lenders, allowing individuals to lend money directly to other people or businesses without going through traditional financial institutions. P2P lending can be an attractive option for startups because it often offers lower interest rates than traditional loans. However, borrowers must have a solid credit history and meet other eligibility requirements before being approved for a loan.

Microloans from Non-Profit Organizations: Funding with Social Impact

Non-profit organizations like Kiva and Accion provide microloans – small loans typically ranging from $500-$50,000 – with the goal of supporting underserved communities or individuals who might not qualify for traditional bank loans. These organizations often prioritize social impact over profit, meaning they may offer more lenient terms or lower interest rates than commercial lenders.

Microloans can be especially valuable for startups that need a small amount of funding but don’t have established credit history or collateral. Alternative funding sources such as crowdfunding platforms, P2P lending platforms, and non-profit microloan organizations provide viable options for startups seeking capital beyond traditional sources like banks or venture capitalists. Each option has its own unique benefits and drawbacks, and it’s important for entrepreneurs to research and evaluate all options before deciding which is best for their business.

Networking and Pitching to Investors

Building relationships with potential investors is crucial for securing funding for your startup idea.

Attending networking events and conferences is an excellent opportunity to connect with investors face-to-face. Introduce yourself, exchange business cards, and genuinely try to get to know them.

Remember, building trust takes time, so don’t expect immediate results.

Attending Networking Events and Conferences

One way to find networking events is by joining industry-specific associations or local business communities. You can also search online or attend startup-related meetups in your area, which can be found through websites like Meetup.com or Eventbrite.

Creating a Pitch Deck

A pitch deck is a summary of your business idea that you present to potential investors. It typically includes information about the problem you are solving, your target market, how you plan on making money, and why your team is qualified to execute the plan successfully. The pitch deck should be visually appealing and concise enough not to bore anyone.

Be sure to tell a story that captures their attention from the start.

Keep it simple but memorable; remember that it’s not just about data but also about selling an idea.

Reaching out to Potential Investors Through Email or LinkedIn

If you have identified potential investors online or through mutual connections but haven’t met them in person yet, reach out via email or LinkedIn.

In your message, introduce yourself briefly and state your interest in discussing with them further about possibly investing in your startup idea. Keep the message short and sweet; ideally no longer than three short paragraphs – include what makes you different from other startups they talk with regularly as well as any notable traction you might have achieved so far (customers acquired revenue earned etc.).

Here’s a really good article on how to do cold outreach to investors. You need to sell them on your idea and you need to know what sectors they invest in at a minimum. 

Don’t forget to include a clear call-to-action and your contact information. It’s also important to follow up with them if you don’t receive a response within a week or two. Sometimes people are just busy, so don’t take it personally.

Grants and Contests

When it comes to finding funding for your startup, grants and pitch contests can be a great option to explore.

There are many grants available that are specific to certain industries or demographic groups, such as women-owned businesses or minority-owned businesses.

To find these grants, start by researching organizations that support entrepreneurs in your industry or demographic group. Many of these organizations offer grant programs or can point you towards other sources of funding.

Researching Grants Specific to Your Industry or Demographic

To find grants specific to your industry or demographic, start by doing some online research. The Small Business Administration (SBA) website is a good place to start, as they have a list of grant programs available for small businesses.

You can also reach out to local business associations and chambers of commerce for information on grants in your area. It’s important to read the requirements carefully when applying for a grant, as they often have strict eligibility criteria and application deadlines. Be sure to submit all required documentation on time and follow up with the organization after submitting your application.

Entering Pitch Contests for Funding Opportunities

Pitch contests are another way to potentially secure funding for your startup idea. These contests typically require you to create a pitch deck and present it in front of judges who will decide whether or not they want to invest in your idea.

To find pitch contests, do some research online and through business associations in your area. Look for opportunities specifically targeted towards startups in your industry or demographic group. When preparing for a pitch contest, make sure you have a clear understanding of what the judges are looking for and tailor your pitch accordingly.

Practice presenting in front of friends and family members so you feel confident when it comes time for the actual contest.

While winning a grant or pitch contest is never guaranteed, it’s important to explore all possible funding options when starting a business.

Remember, perseverance and creativity are key to finding the right investors and funding to bring your startup idea to life.

Bootstrapping and Self-Funding

The idea of starting a business with no outside funding may seem daunting, but it’s a common practice among entrepreneurs.

Bootstrapping means using your own savings and resources to get started or grow the business. It could also involve using credit cards or taking out personal loans to fund the venture.

The advantage of bootstrapping is that you don’t owe anyone else anything, and you have complete control over your vision and strategy. However, the downside is that it puts all financial risk on you, and it could take longer to achieve growth.

Using personal savings or credit cards to fund the startup

Many entrepreneurs turn to their own savings account when they start a business because it’s easily accessible. If you have enough saved up, you can use this money as seed funding for your startup without getting bogged down in debt or interest payments.

Another option is using credit cards for funding as they offer easy access to cash without needing collateral or lengthy application processes.

Starting small and reinvesting profits into the business

If you’re not interested in seeking outside funding, starting small can be an excellent way to bootstrap your startup. Start by selling online through platforms such as Etsy or Amazon Handmade before expanding into other channels such as Shopify website or social media accounts like Facebook page etc.. This approach allows you to generate revenue without significant investment upfront costs. Reinvesting profits back into the business helps maintain steady growth while keeping financial obligations manageable. Bootstrapping makes sense for many entrepreneurs because it gives them control over their vision and strategy while minimizing debt. Starting small and reinvesting profits is another alternative that requires discipline but can lead to success if executed properly.

Finding and connecting with venture capitalists and other investors

Remember, the investors out there are interested in knowing about interesting new companies that have potential. They want to hear from you, but they are often short on time and you need to do whatever you can to “pre-validate” yourself with them.

Make sure you let them know exactly who you and your team are, if you’ve had experience already in startups. This is a major plus, even if your startup failed. They generally love to work with founders who have been in the trenches and worn all the hats, and been through a full business cycle – even if it failed in the end.

Locate Angel Investor Groups and Venture Capital groups in your area

Here are some groups that are centered in Los Angeles area – but you can do a search for your local metro area too:

• Tech Coast Angels is a group of angel investors who invest in early-stage technology companies. They hold regular pitch events where entrepreneurs can present their businesses to the group.
• Pitch Competitons Nationwide – here’s a search page with many listings. Add the year and your major metro area to the search to dial it in.
• The LAUNCH LAUNCH LAUNCH is a pitch competition for early-stage companies in the Los Angeles area. The competition is open to companies in any industry, and the winners receive cash prizes and other benefits.
• The Angel Capital Association of Southern California is a non-profit organization that connects angel investors with entrepreneurs. They hold regular events where entrepreneurs can pitch their businesses to investors.
• The Southern California Venture Capitalist and Investor List  here’s a great page with an extensive list of investors, incubators, and recent deal sizes.

These are just a few examples of the many pitch contests and angel investor pitch events that are coming up in the Los Angeles area. To find more events, you can search online or contact your local chamber of commerce.

Here are a number of ways to find investors to pitch your startup to –  and a few tips:

• Attend industry events. This is a great way to meet potential investors and learn more about the industry you’re in. You can find events online or through your local chamber of commerce.
• Network with other entrepreneurs. Talk to other entrepreneurs who have raised money from investors. They can give you advice on how to find investors and what to expect.
• Use online resources. There are a number of online resources that can help you find investors. Some of these resources include AngelList, Crunchbase, and VentureBeat.
• Reach out to investors directly. Once you’ve found some potential investors, reach out to them directly and introduce yourself. Send them your pitch deck and see if they’re interested in hearing more.

It’s important to remember that not all investors are created equal.

Some investors are more interested in early-stage companies, while others are more interested in later-stage companies. Some investors are more interested in technology companies, while others are more interested in consumer companies. It’s important to do your research and find investors who are a good fit for your company.

When you’re pitching your startup to investors, it’s important to be prepared.

Preparedness cannot be overemphasized. If you’re unprepared, or late, or send emails with typos or unclear verbiage, etc, the investors will assume this is how you’ll run the company too.

Make sure you have a clear and concise pitch deck that explains your business model, your target market, and your financial projections. Be able to answer any questions that investors may have. And most importantly, be passionate about your business. Investors can tell when you’re not passionate about your business, and they’re less likely to invest in you if you’re not.

Raising money from investors is a challenging process, but it’s possible with hard work and dedication. By following these tips, you can increase your chances of success.

Conclusion

Finding investors and funding for your startup idea can be a daunting task, but there are many options available.

Traditional funding sources such as bank loans, SBA loans, angel investors, and venture capitalists are great options if you have a solid business plan and a proven track record.

However, if you’re just starting out or have a more unconventional idea, alternative funding sources like crowdfunding platforms, peer-to-peer lending platforms or microloans from non-profit organizations may be the way to go. Networking and pitching to investors is also an effective way of securing funding for your startup.

Attending networking events and conferences is an excellent opportunity to meet potential investors with similar interests. Creating a pitch deck that highlights your business plan and goals in a concise and compelling way is crucial when pitching to investors.

Grants and contests can also be a great source of funding for startups. Researching grants specific to your industry or demographic can lead you down the path of securing funds without having to take on any debt. Entering pitch contests is another exciting way of securing funds for your startup.

Bootstrapping or self-funding may be necessary if traditional financing methods aren’t feasible or appealing. Using personal savings or credit cards might not sound ideal but it’s important to remember that this road has led many successful entrepreneurs in today’s market. Regardless of which approach you choose, it’s important to remain optimistic about the future of your business endeavor. Remember that every setback is an opportunity for growth so keep pushing yourself towards success!