It is clear that the search for investors for a startup takes much longer than we probably think. And it is something completely normal — we want to evaluate all the options in depth since the impact on our company will be remarkable. However, we don’t want this to seem overly complicated because these days when we talk about investor research, it really means going through a handful of databases and websites to find potential connections to the investment community.
Where to find investors for a startup?
Finding investors for a startup is not like finding a plumber. There is no “directory of interested investors” that you can bombard with emails and wait for people to line up to give you money. The process is like finding clients, in that you seek out potential candidates and then work to get a warm introduction from those candidates to start a conversation.
Starting a small business is an exciting time, but keep in mind that startup funds don’t have to come from the business owner or a bank loan. There are ways to ease some of the financial strain, whether it’s through investors who only make money when a company makes a profit or loans with lower interest rates.
Let’s review the sources where we can find some of these investors for a startup.
- Network of acquaintances: We will describe how to mine not only your contacts, but also the friends of friends of friends to find diamonds in the rough.
- Incubators: Incubators are specifically designed to help entrepreneurs in the early stages of their business by providing a bit of capital and experience.
- Research Databases: There are some massive databases (mostly free) where almost every startup investor can be found and researched.
- Groups of angel investors or business angels: There are groups of well-trained angels that you can easily find through a regulated process.
- Funding and crowdfunding portals: We’ll debunk the pros and cons of using a funding portal so you can make the most of your time and resources. And many other options!
Your own network of acquaintances
Before answering, “I don’t know any investors, why should I bother with my social network?” read this:
You probably don’t know any investors, but that’s not the point. You might know someone who knows an investor, and this is how most startups find their first sponsor for their startup. It may not be your uncle, but it could be one of your college buddies or someone you worked with at a previous job. Screening your personal network is by far the most important research you’ll ever do.
LinkedIn is usually the preferred option for this. It is especially valuable for finding 2nd and 3rd level connections to people you know. We could expand the search on other social networks like Facebook, but LinkedIn has proven to be the best general source of professional information about people.
If you have a poorly worked LinkedIn profile, now is a good time to make it right. Remember that every new person you add on LinkedIn is a complete hub for potential future connections.
Angel investor groups
Angel investor groups are made up of a number of wealthy angels who come together to collectively review and make investments. They have more formalized processes for finding them, launching them, and closing a deal than any of the individual angels.
The good thing about angel investor groups is that they are relatively easy to find. Each will have their own website detailing their investment preferences, existing investment portfolio, and the application process to be considered.
You can potentially access a whole pool of capital just by launching a source. There will be a committee that will review your proposal and let you know if it is a good fit for the group. If so, you often have access to individual group members who can provide not only additional capital, but also your own rolodex of valuable connections.
They don’t make many investments, and the investments they make go through a selection committee. If that one committee doesn’t like what you’re offering, it can prevent you from accessing the whole group. That doesn’t mean that other angels can’t individually participate in the group, but if they’ve heard that a selection committee has turned you down, that doesn’t exactly help your chances!
Angel investor groups tend to be very localized. If you’re in New York, you’ll have better luck talking to groups that are local to your area than trying to apply to a group in California (unlike larger institutional investors, such as venture capital firms, who have the budget and full-time partners to travel and pursue deals). Angel groups don’t have those resources, often forcing them to stay close to home.
The best option is to first approach those who are local to your area, first by city, then by state, and then by region. If you’ve cast every group in your region and received a friendly “no”, you’ve probably exhausted their options on angel groups (which happens).
There are investor databases that have a treasure trove of investor information, including what previous investments have been made, who the people are who made the investments, and how much was invested. That’s the good news.
The bad news is that there is no magical database of hungry investors that startups can bombard with emails about their idea. If that list existed, every investor on the planet would ask to be removed from it.
For 90% of what you’re going to do, you can probably get away with using Crunchbase, which is free. While there are other, more premium services (listed below), you will most likely need a very specific use case to bother with them.
The most comprehensive source of investor information (which is mostly free) is Crunchbase. Here you can find more than 100,000 investor profiles and their investment history. Depending on your needs, you can look for angel investors, venture capitalists, and any other type of specialized investor.
Crunchbase provides a wealth of background information, from the investments they’ve made to all the contact information available on social media. This will definitely be your most valuable asset for extensive research. If you want to get additional data, you can unlock the premium version.
Most of the other sources of information for investors are aimed at business users, so they tend to keep their valuable data behind a paywall. These include services like Mattermark, CB Insights, and the premium version of Crunchbase. The chance that you’ll need more than what Crunchbase has to offer for free will be pretty low, so you can probably get most of what you need without spending anything.
As we explore different types of startup investors and research strategies, you’ll return to these research databases regularly to cross-reference what you find with additional information you can use.
A more developed option in the US and still incipient in some countries is crowdfunding. The financing of one person or several people with large amounts of money is replaced by small contributions in large amounts. It is still in the regulation phase.
Collective or mass financing, micro-patronage obtained from platforms created specifically for it. The entrepreneurs present their projects on these websites and the users of the platform make the contributions they consider worthy of it. Instead of depending on the support of a single investor or group of investors, the financing is received from the hands of thousands of users who decide to collaborate in the cause. Among the best known portals for its management are Kickstarter, Goteo, Lanzanos, or Verkami.
It's a variant of crowdfunding in which the source of financing is individuals. Contributions are also made through web portals prepared for it. Some of the best known are Lendico, Comunitae, LoanBook, Arboribus, etc.
A typical situation of a startup promotion
A large number of entrepreneurs who are attracting investments in their business are asking the main question: where and how to look for investors so that potential candidates would be ready to invest?
A typical promotion situation looks like this:
- You posted some ads on 1–2 sites, but there are really few potential investors
- Those responses that you got are hardly targeted — people are generally “out of touch” with your business, not ready for risks, require 100% guarantees and a yield of 40%
- Only scammers write back, offering to buy insurance / risk assessment / business plan and so on
When it comes to potential investors that are targeted, it is almost impossible to convince them to invest money. After the initial communication, they disappear and the negotiations are frozen.
The same economic laws apply in attracting investments as elsewhere. For a good sales flow you need a lot of potential investors. In order to ensure such a flow, you need to actively advertise, including on investment platforms and bulletin boards.
Alas, investors will not fall on you out of the sky.
Incubators are organizations designed to help startups turn their ideas into products. They typically provide a very small amount of capital ($20,000 is common) and take a small percentage of the company’s stake in return.
But it’s not just money — they also provide a team of experts and mentors who help speed up your startup by connecting you with the people and resources to get things done quickly. For first-time entrepreneurs, it can be a great starting partner.
Incubators originated primarily in the tech space, but have since grown to more than 3,000 establishments worldwide and in a wide variety of industries. Similar to the university application, each incubator will have a finite number of openings on a recurring basis, and the selection of new companies will be requested. Like any other investor, they have their own geographic, industry, and focus areas in which they participate.
You’ll want to start with incubators that are close to you geographically because they tend to be the most obvious. Beyond that, incubators that have a focus on or a history of working with startups in your industry are important. If you’re opening a new restaurant in Wichita, it won’t do you any good to apply to a Silicon Valley tech incubator.
Don’t think of incubators as a check for $20,000. Think of them as the ability to instantly add a large integrated network of connections. They include startup investors who use incubators as a feeding ground for new investments. An incubator can often be a stepping stone to finding a much larger pool of interested investors.
Recommendations for placing your investment projects
Use all the features of websites and platforms — place yourself on the showcase of investment offers and ready-made businesses, take the TOP in the issuance of investment projects, send mailings to the investor base, write articles and publish them on the Internet. Thankfully, many sites that we mentioned provide such an opportunity.
Twist up your ads on business selling sites, emphasizing the passivity of income for a potential investor. No one wants to buy a job for themselves. All investors want is to receive money on a card.
Ordinary ad sites are ambiguous. The “ready-made business” section is perfect for finding investors if your business is understandable and obvious to the masses. Investment offers of pawnshops, trading businesses, restaurants, etc. show great results on such sites.
Final words for entrepreneurs seeking investment
It is almost impossible to effectively promote your investment project and not pay anything for it, so get ready to put up with the costs. Advertising makes sales, and a loan to your company or a stake in your business is as much a commodity as a can of mayonnaise.
- Don’t only stay for a week or two — this is not enough. You will not realize the value of the website if you do not stay there (with a paid package) for at least 3 months, and preferably half a year.
- Use all the features of investment platforms (paid and free). Get the most out of them.
- Pay only for placements on specialized resources. They have the most concentrated audience.
There are many other ways to find investors for a startup. Another option is to apply to acceleration programs offered by many investment firms, universities, and seed funds around the world. Although the competition is tough, the rewards are enormous. These programs usually last for weeks or months, and their sole purpose is to jump-start the project. They help raise funds and shape the business model to fit the market. You can also meet other founders and veterans to exchange ideas.
On the other hand, if your startup requires a lot of initial funds, we recommend you attend events related to your industry. These events are a great way to engage with investors and increase networking. You will also be able to find mentors who can guide you.
Finally, keep in mind that most governments are providing funds to startups by launching fundraising programs. There are two types of programs. One is where the government invests in the startup and the other is where the government organizes a meeting with the investors who have to invest a certain amount of money in startups.