You have an idea for a product. You don’t have anything else. Where to get money for your project? Will you really get some? What if you also need business advice along the way?
This article will answer your questions.
There are three types of investment seekers
If we’re talking startups, founders seeking investment usually fall into two categories. Each has its own investment options. Let’s see which one you are.
You have a general idea of what the product is going to be but you haven’t worked through the details
It all starts with an idea. If you have it already but are still not sure about the details, look into Angel Investment.
An angel investor (they’re also called private investors, seed investors) is basically a wealthy person who can provide financial support for a small business or an entrepreneur for ownership stock in the firm. The percentage is usually up to 25% but can reach as much as 40% or more. It may be a one-time investment or continuous money infusion.
Angels invest in the products that are just starting off and use their own money for that. So basically any rich person can become an angel investor. However, these are high-risk investments that should not exceed 10% of an angel investor’s portfolio. Meaning they can’t spend more than 10% of their net worth on the investing.
Angel investors usually also have the industry expertise: they’ve most likely made the money they have themselves by running a business successfully. So they can also give you business advice and guidance in your entrepreneurship as well as be a one of the key participants of the decision making process if their share allows them to.
To find an angel you don’t necessarily need an old rich aunt or Jeff Bezos as your friend
- Angellist — a free tool to find angel investors or even first employees for your startup. One of the first businesses to seek out angels on Angellist was Uber, in 2010.
- Angel Investment Network — kind of a marketplace to connect startups with investors.
- Social media — tell about your ideas on your Twitter or LinkedIn and ask your contacts to share the info. Six degrees of separation and the power of weak ties are real!
Another category is:
You have a detailed idea description and solid understanding of how it will work
For when you:
- know exactly what you and your business need
- you know you will grow fast and investors will see it too
Venture capitalists provide funding to startups and small businesses with seen long-term development potential. You can get venture capital from wealthy individual investors, investment banks, or other financial organizations.
What’s special about VC is that it’s not necessarily money. It can be strong managerial powers or, for instance, technical expertise and skills.
This is a quite risky type of money allocation for investors, but the prospect for above-average profits is appealing. In most cases venture investors tend to finance high-tech projects, pharma, health, or some kind of brand new idea — anything with extraordinary growth potential.
Here is what you need to do to win investment from a VC:
1. Identify venture capital firms that invest in businesses similar to yours. You can go both ways: research into what VC funded your concurrent and competitor businesses or look into what startups particular VC invest into. Try CB Insights — it’s a highly-regarded resource that offers data on active VC firms and associated industries.
2. Make sure that the company invests in the stage of funding that you require. Some VC might be looking to fund startups with nothing but an idea and a plan, some only invest into small businesses with an MVP and strong growth potential. Most venturing organizations provide that info along with pitch requirements on their website.
3. Investigate the firm’s previous deals. This way you can see whether the VC you’ve picked provides the exact type of investment you seek and you don’t get a management team instead of $50k. The research method is the same as in point 1, the info is quite transparent. Or try Crunchbase.
4. Prepare your pitch presentation. You need to literally sell your idea to the investors. Here’s what you should cover.
- Your target audience
Describe it as detailed as possible. Include the clear definition of the segment and the TA’s known peculiarities — you must demonstrate you know them well. But don’t confuse “detailed” and “narrow”. Being too specific is not always an advantage.
You should also research into your TA. The more client-oriented you are, the better. Try out field study for that.
- Problem, solution, and product image. Use prototypes, designs, or demo.
- Technology / Innovation
You should transparently and clearly show what technology / approach / innovation you put in the base, how it will help you take over the competition, what the value is and how this exact technology / approach / innovation serves your TA’s needs.
- Monetization model
This is how you plan to make money with your product and how realistic it is to make money off the product.
- Team and implementation
With this info you should prove you’re well aware of what key roles you need to cover in your team to get to the result. Show your current opportunities and strong understanding of the resources it requires.
- How realistic it is to enter the market
Explain why you feel your strategy matches the product goals and showcase how well you understand the steps you need to take to get there.
You need a mentor, a network, and support in building your business
No matter what stage you are at, business incubators might be a good solution for you.
A business incubator is an organization that helps entrepreneurs develop and succeed by providing a variety of business support tools and services such as physical space, financing, coaching, shared services, and networking connections.
Private corporations, municipalities, and public organizations such as universities and colleges frequently support business incubation programs. Their mission is to assist in the formation and growth of new firms by providing them with the required resources, including financial and technical assistance. Their office and manufacturing space is available at below-market prices, and their team provides valuable assistance and expertise in building business and marketing plans, as well as assisting in the funding of new ventures.
Firms often stay in a business incubator for two years, during which time they sometimes share telephone, secretarial office, and production equipment expenditures with other new companies in an effort to lower operational costs.
To find an incubator
Try the IncubatorList.
The main thing to remember — look for incubators in your location and for your segment, since there are narrowly specialized incubators: for education, medicine, or even supporting women). Pay attention to what the incubator wants in return, how much it costs, if there were successful alumni, or if it’s university based.
There’re investment seeking strategies that work well for all three types
Anyone who thinks your idea is valuable enough to generate ROI (return on investment) might help. So fundraise! Here’re possible strategies:
1. Friends & Family
Don’t underestimate your close ones. They know and believe you, so this money is easy to attract. Outside investors need proof you’re serious. But another thing here — if you’re not ready to risk your own and your close ones’ money, you are probably not.
Mail chimp and Github bootstrapped themselves. See who else.
Make a million stranges who believe in your idea donate a dollar. How to do that:
- Create a campaign
- Make the content to engage people
- Set up and launch the campaign
- Promote campaign: e.g. on social media
It’s a form of crowdfunding when people donate money to your project and expect to get a non-monetary benefit in return: a lifetime subscription, a merch, or something else.
Where to crowdfund reward-based:
The mechanic is All or nothing:
- set your objective you’re seeking to crowdfund (try their template for objective estimation in .xls). If you don’t get it, all the money goes back to the backers and you get nothing.
- define the rewards for backers: lifetime subscription, a merch we’ve mentioned before, or an event pass, etc. You can’t set equity as a reward.
- set the campaign period — 1 to 90 days. The most effective period proves to be 30 days. The limited time period creates urgency and motivates your community to back your project and spread the word.
If a project is successfully funded, Kickstarter collects a 5% fee from the funds collected for creators. Stripe, the payments processor, will also collect a payment processing fee (roughly 3-5%). The complete fee breakdowns are available here.
Why is it a good idea to crowdfund on Kickstarter?
- Can start promotion before everything’s ready by creating Pre-launch page
Potential backers will be able to find it on Kickstarter, but you should share your pre-launch page with everyone to create excitement and attention around your project before you launch it.
- Connect Google Analytics to the campaign.
That means you can advertise on YouTube, Google search, or the affiliated website with Google ads.
Your project might fit into Tech&Innovation category with Education, Health & Fitness, Productivity subcategories. Indiegogo is mostly for tangible products, yet you still can try crowdfund your software there. Here’s what a successful software campaign is like on Indiegogo: Fluent Forever App: THINK In Any New Language
How much can you raise?
Indiegogo offers two funding types: Flexible Funding (keep what you raise) and Fixed Funding (all-or-nothing). Learn about the differences and the pricing for each.
It’s a French crowdfunding platform where you can finance your project with regular support of your community. Choose a monthly or quarterly recurrence and create your own subscription formulas, offer exclusive content to your contributors and finance the sustainability of your project over the long term!
It is a form of fundraising where you attract investors that contribute funds toward your business goals in return for a financial stake in the company. You can also allow them into the product making process depending on their investment like voting on marketing or development matters.
Where to equity crowdfund:
Depending on where you and your business are located, you might want to try one of these platforms:
- Germany: Companisto, Seedmatch
- Romania: Seedblink
- Spain: Startupxplore, Capitalcell
- France: WiSeed, Sowefund, Happy Capital
- Estonia: Funderbeam
- Sweden: Fundedbyme
- Finland / Sweden: Invesdor
- The Netherlands: Leapfunder, Symbid
- Austria: Green Rocket
- Belgium: Bolero
- Israel: ExitValley, Together
- UAE: Bambucorn, Beehive, Dubainext
- Palestine: Buildpalestine,
- Malaysia: Ethis
3. Initial coin offering
ICO is a form of investment where funds are raised with cryptocurrency venture. How to get into ICO:
- Create your white paper — basically your idea / project description and all its aspects that might potentially catch investors’ interest. Make sure it’s well designed and is truly appealing as an investment opportunity.
- Publish it on any cryptocurrency stock market (e.g. Binance) and promote it.
- Get crypto donations (mostly in Ethereum) from backers. They’ll get project’s tokens in return.
- Once your project succeeds the backers can sell their tokens and profit, so in case of your success it’s a win-win situation.
Bad news: ICO involves a lot of risk taking. Good news: risks are mostly for the backers.
Listing an ICO is not free, though. Rough estimates are in the range of $40,000 to $200,000.
You might be seeking investment on different stages of your project development. The first one here can be building an MVP. Learn how to save money on that from our article.
And if you already have one and are seeking further stages funding, here’s what you should probably allocate budget to before you spend a penny on the actual development.