When a startup is raising capital via either debt or equity methods, there are a number of legal, financial, and strategic considerations to keep in mind. Although shows like Shark Tank may have you believe otherwise, it is not as easy as saying "here is 10% of my company in exchange for $100,000."
All successful enterprises are built in response to a specific and well defined need. This can be as simple as the need for a cheaper, better cup of coffee in your hometown, or as advanced as the need for access to malaria vaccinations in the developing world. Your potential investor will want to know the nature of the problem that your firm is able to profitably solve.
Just as you should introduce your startup concept in a way that highlights its strengths, so should you introduce yourself. There is a significant perceived correlation between the integrity of a leader and the culture of the organization under his/her leadership. Now is the time to do a deep dive into your own self and ask the question: which of my qualities make me a reliable investment prospect?
Before you begin writing your pitch, first you should zoom all the way out and consider who you are trying to reach. Obviously, your goal is to use your time wisely and get your idea in front of key contacts who can help your business succeed. There are several types of people who may fit this role, from venture capital partners, to talent recruiting agencies, to potential joint venture relationships. That said, you should always know who your audience is and frame your pitch in a way that speaks to their own goals or objectives.
The barriers to entry for startup investment have been significantly lowered over the past decade. Angel investors have become big players in an industry that used to be dominated by large venture capital firms. These angel groups, also known as "micro VCs" are perhaps the most active players in seed rounds, often investing small amounts in multiple startups at once. What do you need to keep in mind when dealing with these types of investors?
It is true that there are several similarities between venture capitalists and angel investors. Both are actively looking for investment opportunities and therefore they make good contacts for the ambitious entrepreneur who is seeking capital to grow his/her startup. However, there are differences between the two which will alter the process of recruiting funds from these types of investors.
With over 500,000 new businesses started each year in the United States, it is safe to say that the entrepreneurial spirit is alive now more than ever. The SaaS marketplace has converted the formerly prohibitive fixed costs of starting a business into far more affordable services, leading to the proliferation of creative startups. Although many of the barriers to entry have been broken down, early stage startups are still having a hard time attracting investors.