8 Sources of Early Stage Investors – Sources You’ve Might of Overlooked
Finding early stage investors or getting enough funding for your new business idea is quite tuff and critical. In getting the funding for your startup business, it’s good to keep in mind that the money ought to be enough for you to lay down the idea into action and also keep you on the run until you can start gaining sales.
Most entrepreneurs think of the bank as their salvage when they want to fund their projects – this will never get that simple for you, in fact, it’s next to impossible. It shouldn’t be a surprise that a bank wouldn’t risk its money to give you an early-stage loan for your business when 95% of all startups fail in the first year. Nor, should this ever despair you as there are more options than a bank loan.
You have many choices for taking on a loan or an investment, but you must be careful on the type of loan and investor you choose as it will significantly impact the survival of your business and its scalability.
Here are some common sources of investment for you; good or bad, you be the judge. In no particular order of importance.
Self-Funding as Early Stage Investing
You qualify to be your own investor using your assets and equity. This may involve the liquefying of your investments, retirement funds, a mortgage to your house, or setting a foot into your savings. You can also turn to your credit card by using its value or credit limit to apply for a line of credit at your bank. This is a good option if you can as it gives you total control of your business without answering to any investor.
Small Business Administration (SBA)
The SBA association is a body which will provide loan guarantee but won’t actually give you any money. This can be crucial as they chip in to help you access bank loans. Banks never lend startups non-guaranteed loans, specially in early-stage businesses, unless you have a remarkable relationship with your bank manager. Working with a SBA and/or a bank manager can alter the results of your bank loan sufficiently, in a positive manner.
Early Stage Investors from an Angel
An angel investor can be a high net worth individual, a group of high net worth individuals or a network who gives you the financing capital with expectations of equity balance in return. The angel investor may or may not request being part of the management of the business. This can be advantageous to you as a starter if the angel investor wants to be part of management. You could bring expertise into your business, from the mature investor, without having to worry about a salary.
Settling for an angel can be sensitive, time consuming and emotional. You have to research angel investors lists and find a genuine angel who is active and occasional in investing rather than some fake angels. During your research it’s essential you enquire how many businesses he/she is funding at the moment. Don’t go for overloaded ones as this might limit access to their availability and impact your timeline for considering your application.
Friends and Family
Financing your business with the help of your friends and family is good, and it’s one of the top choices for early stage investors. The family and friends strategy may give you lenient offers, some even sign loan checks without questioning. Which is great, but make sure the investment is treated the same way as any other investment by create an agreement. This helps to ensure your relationship with the individual stays sound throughout your business lifecycle.
Be a little cautious with this type of investment and bring on individuals who are going to be understanding and reasonable. Why? Usually everything remains fine while your business is succeeding but the moment the business is not fruitful as expect, which is normal, some of your friends or family members won’t understand and they might request a withdraw. Be careful and be sure to get everything in writing.
Grants (SBIT, SBTT, SBIR, etc.)
They are small or large business grants which can come from different government agencies or organizations who’s mission is to achieve or solve a problem, such as health, poverty, etc.
It can be a little tricky to receive a grant as it’s all about applying and testing your luck. Federal agencies provide funding to many startups and to qualify a business usually needs to satisfy a number of different criteria’s. Which includes you providing accurate detailed market research of your business and a clear understanding on how your execution will venture to a saleable product in the future.
Although it’s quite competitive, I highly recommend this type of investment. You’ll notice that I never once said the grant provider requires an equity stake. Hint hint.
Seed Funding / Incubator Firms
Incubators are typically companies or organizations rather than individuals who are more than willing to uphold your business idea even when it’s just a mere plan. These companies would offer you cash, office places, workshops or even help in your marketing but still require equity later.
How to reach them? Seed firms are easy to find, just google the term for your local area. If your just starting out or if you’re inexperienced then working with a seed firm is advantageous since they chip in at the initial stages and provide education, advice, as well as, resources for your startup. The investment has clear documentation with set terms you must comply with every funding setup.
Incubator companies will be a bridge to meet angels or venture capital as hey will advise you on how to approach them or even set you up with the professionals individually. You should know the difference between angel investor versus venture capitalist and the benefits of both.
Getting a business partnership with a stable and popular company would be an option too. There are several established companies out there who are ready to venture into small startups and help them develop up. This investment would also lead to funding your project and provide you guidance to improve your chances of success. The involvement of a successful company would create stability in the future of your business.
They are individuals who will channel you to potential and professional investors. Literally, these individuals work for financial institutions which primarily raise capital for projects. The banker works to connect you with individuals or network of professional investors.
Unlike the investors, the bankers don’t have access to the funds, but they act as the intermediators between you and them. An advantage; this system will enhance your chances to meeting up with the right investor. It can help you get your foot into a door where otherwise the chances were slim. Investment banker’s as early stage investors can be great but the process is usually very delayed. Whenever, you are not directly connected to an early stage investors the communication is always slower.
Early Stage Investors Conclusion
You need money and resources, I get that and I know it is important. During my time of fund raising it was a constant job to overturn as many rocks as possible. Raising capital is an all-day-job. You’re fund raising regardless if you’re at the office, conference or at a family dinner. Have trust and complete knowledge of your business and people eventually start to believe and follow you.
If you need help with your fundraising efforts then don’t hesitate to reach out me. Good luck!