Because early-stage backers can have a significant impact on the investments (and terms) your startup business attracts in subsequent funding stages, it’s important to choose the right investor for your company, right from the start.
That said, to be successful, entrepreneurs should expect to spend several months to a year focused on how to find the right investor as part of their fundraising efforts. The steps in this article will help you discover what you need to know during that time to locate the right kind of investor for your business.
How to find the right investor in 6 steps
Step 1. Get clear on your needs.
Before you can find the most promising startup investor, you’ll need to get clear on your investment relationship goals.
- What kind of expertise or connections are important to your business?
- How involved or hands-on do you want your investor to be?
- What level of funder reporting or communication are you ready to commit to?
- How much (if any) equity is your business willing to give up?
Knowing your business needs in advance will help you save valuable time by pre-empting unproductive finance avenues.
Step 2: Explore all fundraising options.
Although fundraising opportunities vary widely, many business owners end up chasing the wrong investor option for their needs.
In most cases when startup founders think about fundraising, they think about equity investors like venture capitalists (VCs) or angel investors. But although these options can offer money, expertise, and connections, giving up a piece of your company isn’t always necessary or ideal for raising money.
Debt financing, government grants, and business accelerator programs are all worth exploring as an alternative to seeking VC money.
Step 3. Leverage your networks.
If you’re unsure how to find the right investor, leveraging your personal and professional networks is a good place to start.
By reaching out to business partners, former colleagues—even friends and family—you can make your fundraising efforts known and ask to be introduced or recommended to backers who may be a good fit.
Not only will this help you cut through the usual flurry of investment queries (venture capital firms, for example, receive more than 1,000 proposals a year), you’ll stand out as being endorsed by a trustworthy source.
Step 4. Find other ways to connect.
Reaching out through a professional social media site like LinkedIn can be a great way to connect with a list of potential investors—and get advice on what they typically look for in the startups they fund.
Once you’re connected, you can inquire about:
- Setting up a call
- Meeting over coffee or drinks
- Emailing them updates about your business
Other connection possibilities include adding your startup to investor-friendly sites like AngelList, speaking at business conferences, and leveraging accelerator or incubator program contacts.
Step 5. Qualify prospective investors in advance.
As you consider how to find the right investor, don’t forget that doing your due diligence—by pre-qualifying potential funders—is the best way to identify mutually beneficial opportunities.
- Does a particular investor fit your needs?
- Does your business fit their criteria? (Think in terms of your company stage, location, or industry, for example)
- Can they provide you with the amount of funding you're looking for?
You may also want to investigate a backer’s reputation, interests, and who they’ve funded in the past by researching their website or a public database like Crunchbase.
Steps 6. Engage multiple investors simultaneously.
To get better acquainted, don’t be afraid to engage in conversation with as many as 6 potential backers at once by:
- Listing and contacting your top half-dozen choices
- Getting investor-ready so you can effectively pitch your business when you meet up
- Crossing off and replacing non-starters on your list with next-best options
Eventually, you’ll narrow your company’s best-fit funding opportunities down to one or two prime investor relationships.
Final thoughts …
Some startups are fortunate enough to raise funds with minimal outreach. In most cases, however, you’ll need to connect with dozens of potential backers to find the right investor for your business—most of whom will want to see financial statements and sales and revenue projections.
If you need help getting your accounts in shape before you start fundraising, Enkel can take care of your catch-up bookkeeping and provide you with an up-to-date income statement and balance sheet that your business can use to pitch investors.