When you start a business, at some point, you’ll need some capital to give it a push. Finding where to get this money can seem challenging, but you may have more options than you realize. There are various types of startup investors you can look to for funding.
Lack of funding and capital is the leading reason small businesses fail, so you need investors. It’s not always as easy as finding someone or someplace with money to spend, though. You need to find the right kind of investor for your business.
With that in mind, here are five types of startup investors to consider. Knowing who they are, what they do and where to find them can help you get the capital you need.
1. Banks and Other Financial Institutions
The most immediately obvious place to get funding is a bank or other type of financial institution. Almost any bank will offer small business loans, but you have to prove your worth first. Financial institutions are often more careful than other investors, so you’ll need proof of profitability.
Proof of revenue will be your best tool in securing a loan, so if your business hasn’t started yet, you may have trouble. Without proof of income, you’ll need solid evidence that your business is sustainable long-term. You should also remember that banks offer loans, not capital for equity, so you’ll have to pay them back.
2. Incubators and Accelerators
A startup incubator is typically a non-profit organization that helps businesses start through funding, mentorship and training. While these won’t offer the most capital, they can be helpful resources for first-time entrepreneurs. You can perform a quick internet search to find some near you to apply to.
Accelerators are similar but deal in fixed terms and are usually for-profit. These are more selective, with top programs accepting only 2% of applications but offering more funding. Y Combinator and Techstars are two of the most notable programs, and you can find many lists of other options online.
Crowdfunding isn’t a traditional type of startup investor, but it is an increasingly popular one. These are websites like GoFundMe and Kickstarter, where you can pitch your idea to a vast network of users. Typically, you’ll offer various tiers of investments, giving more enticing rewards for bigger payments.
Instead of getting a stake in your company, crowdfunding investors will get things like exclusive access or recognition, whatever you decide to offer. Remember that you have to report crowdfunding exchanges on your taxes, even though they feel less official. Kickstarter is the most popular crowdfunding site, but there are others, too.
4. Angel Investors
Angel investors are the kind that you hope you’ll come across in your business venture. These are people with a $200,000-plus income and a net worth of at least $1 million. Given this wealth, angel investors are more likely to write big checks, as long as you can prove you’re worth the risk.
You can find angel investors on LinkedIn or networking events and reach out to them by email or in-person. The Angel Capital Association Member Directory is also an excellent place to look for investors in your area. Remember that these people hear many pitches, so convincing them to invest may be challenging.
5. Venture Capitalists
Venture capitalists are an entrepreneur’s dream. These are investors with high net worths who invest up to millions of dollars at a time. These investors typically won’t offer capital until your business starts to gain revenue or is growing rapidly. Venture capitalists will often look for a decision-making role in your company in return for their investment.
The best way to find these investors is by looking at VC firms. You can find lists of these firms online. Look for something or someone close to you with a history of investing in similar businesses. Only 1% of startups receive venture capital, so pitching to these investors will be a challenge. But it’s worth a shot.
Find the Right Investor for Your Startup
When you’re looking through these different types of startup investors, consider what they can do for you and what you’ll have to give. Remember that these are business transactions, so you’ll always have to give something in return. Once you find an investor that works for you, though, it can accelerate your business.
Starting a company is tough. If you know where to look for help, it can be a lot easier.
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