How to find investors: a guide for startup founders
A roadmap to finding your ideal startup investor
Isabel Pena Alfaro
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Key takeaways:
To find investors, build relationships through Linked In, industry conferences, and startup events
Research potential investors, reach out to them, and follow up to foster connections
Create a solid business plan, rehearse your company's story and vision, and prepare detailed financial documents
What are investors?
Investors are people or organizations that allocate their money into businesses, projects, or assets with the expectation of generating future returns or profits. Some investors are looking to build their wealth slowly over many years, while others want to see quick returns on their investments.
How to find investors
Look for investors in similar companies
Research companies in your industry, or companies with similar business models outside your industry, to identify potential investors. Reach out to those investors and begin the conversation.
You can also reach out to founders of companies that aren't your direct competitors but are similar to yours. When speaking with those founders, ask for introductions and advice on how to find investors.
Network, via Linked In or otherwise
To find the right investors, network—meaning, reach out to folks and engage with them. Set up video or phone calls and foster relationships. Use Linked In as a tool to find new and existing contacts. Make sure your profile is up to date.It may be easier to connect with people you already know and trust and then ask for introductions.
Now, networking is not all about taking from others. It's about building connections. So, collaborate, co-create, and see how you can create partnerships or introduce others to people who may be useful for them, too. This will help you build solid relationships that will help you in the long run.
Attend conferences (and their pitch events)
Attend local startup conferences, meetups, and entrepreneurship events.
Before you arrive, research attending investors and prioritize those most relevant to your startup. Reach out to folks beforehand, introduce yourself, and set up meetings to get the most out of your time at the conference. Focus on building relationships, not just on pitching your idea from the get-go.
In addition to general events, attend industry-specific conferences relevant to your startup's sector. At some of these events, you can showcase your startup by participating in pitch competitions and demo days. This is a big opportunity to put your business in the spotlight and to perfect your pitch.
On that note, participate in many aspects of the events, including side events and afterparties, even if you consider yourself an introvert. This is the time to talk about your business in a more casual setting.
Now, attending conferences isn't a one-and-done deal when looking for investors. Continue to foster relationships with the potential investors you meet. Follow up with folks. Set up calls and meetings. Be persistent and attend multiple events to build recognition and relationships over time.
Remember, finding investors is often a long-term process that requires consistent effort and relationship building. Be patient and stay persistent.
Pros and cons of common funding sources
Friends and family
This approach involves reaching out to your friends and family.
| Pros | Cons |
| They are easier to access and convince | They may lack business expertise to provide valuable advice to you |
| You can create flexible terms and timelines | Flexibility with presentation could hinder your professionalism and growth |
| May not require a formal pitch proposal or presentation | Smaller amounts of capital are typically available |
| Your personal relationship and trust is already established | Potential for family/friendship conflicts over business decisions and/or losses |
| Can strain personal relationships if the business struggles |
Angel investors
Angel investors are high-net-worth individuals who invest personal funds into startups or small businesses, typically in exchange for ownership or convertible debt. Investments typically range from $5, 000 to $100, 000.
| Pros | Cons |
| Provide early-stage funding when institutional sources may not yet | May want significant equity or control, often between 10% and 50% |
| Fill the gap between friends & family and larger investments | Investment amounts may be limited, compared to later-stage options |
| Potential access to industry-specific experience and connections | You may face pressure to deliver high returns, as much as 10x within 5-7 years |
| Can offer mentorship and guidance | Finding the right angel investor could take significant time away from running the business |
Venture capitalists
Venture capitalists (VCs) are professional investors who fund startups and early-stage companies with a strong potential to grow in exchange for equity ownership. Their investments are typically larger than angel investments, often in the millions, as they work with money from pension funds, endowments, and high-net-worth individuals.
| Pros | Cons |
| Access to large amounts of capital | They expect high growth and returns on a specific timeline |
| Extensive networks and resources to help scale the business | Often requires giving up significant equity and some control |
| Expertise in growing startups | Intense due diligence process to secure funding |
| Credibility boost from having VC backing | May push for an exit strategy that doesn't align with founders' vision |
Startup incubators
Startup incubators are organizations that support early-stage companies and entrepreneurs to develop business ideas into viable enterprises. While not all startup incubators provide seed funding, they offer services, such as mentorship and business education. Some provide access to VC firms and investors.
| Pros | Cons |
| Provide workspace, resources, and basic services | May not provide direct funding |
| Offer mentorship, guidance, and educational programming | Competitive application process |
| Help build networks with other startups and potential investors | Time commitment required to participate in programs |
| Often don't take equity in exchange for their services | Limited duration of support (typically 6 months to 5 years) |
Equity financing
Different from the other investors we've outlined on this list where they are people or firms, equity financing is a method of raising capital. Equity financing involves issuing company stock to investors. This can include equity financing with angel investors, VCs, and private equity firms.
| Pros | Cons |
| No repayment obligation, which can free up cash flow | Dilution of ownership and some loss of control |
| Access to investors' expertise, networks, and mentorship | Sharing profits with investors |
| Potential for larger funding amounts compared to debt financing | Can be more expensive in the long term compared to debt financing |
| Shared risk with investors | Time-consuming process to find and negotiate with investors |
| Can be the only option for startups without credit history or collateral |
Accelerator programs
Accelerators are fixed-term, cohort-based programs that provide mentorship, education, and resources to startups with existing simple products, also known as minimum viable products (MVPs).
Accelerator programs typically last 3-6 months and offer an intensive, fast-paced experience. They often provide seed investment in exchange for equity, usually 5-10%.
| Pros | Cons |
| Intensive mentorship, peer learning, and rapid growth support | Selective application process |
| Often provide some seed funding | Equity dilution (typically 5-10% equity) |
| Networking with experienced entrepreneurs and industry experts | Intensive and may require relocation to participate |
| Structured curriculum (e.g., business strategy and product development) | Some do not tailor the program to each startup’s specific needs |
| Demo day exposure to follow-on investors |
Traditional business loans
Banks, credit unions, and other financial institutions offer traditional business loans. These are a lump sum of money that must be repaid over time with interest.
| Pros | Cons |
| No loss of equity or ownership | Require collateral and often personal guarantees |
| Predictable repayment terms | Require regular repayments, regardless of business performance |
| Potential tax benefits from interest payments | Qualifying can be difficult, especially for startups |
| Can help build business credit | May have restrictive covenants or conditions |
| No mentorship or startup guidance |
Crowdfunding
Crowdfunding is a fundraising method done by asking for small contributions from a large number of people, a 'crowd, ' typically through online platforms.
| Pros | Cons |
| Can validate market demand for product/service | Success often depends on existing network and marketing skills |
| Potential for viral marketing and customer acquisition | May not raise sufficient capital for significant growth |
| Startup retains full control and equity in the company | Considerable time and effort required to create and manage the campaign |
| Accessible to a wide range of businesses | Potential reputational risk if campaign fails or rewards aren't delivered |
Preparing to receive investors
Getting clear on what you want and what you're offering will make finding the ideal investor a lot easier for you and your team.
Know what you want in an investor
First, determine the type of investor that suits your business stage (e.g., angel investor, VC, etc.). Then, identify what you're looking for beyond capital (e.g., expertise, connections, mentorship). Decide how much control you're willing to give up. And, finally, consider the investor's track record and industry experience.
Have a solid business plan
Clearly define your product/service and target market. In your business plan, include your growth strategy and a detailed financial projection. Outline your competitive advantage and market opportunity. Demonstrate a clear path to profitability and potential exit strategies.
Rehearse your company's story and vision
Practice. Practice. Practice. Craft a compelling elevator pitch (30-60 seconds) that talks about your story and product/service.
Also, develop a concise and engaging presentation deck that not only shares your product/service but also tells a story about your company.
Practice articulating your long-term vision and goals.
Be prepared to be on the spot to answer tough questions about your business model. Rehearse these answers, too.
Prepare your financial documents
Numbers don't lie. So, create detailed financial statements (e.g., income statement, balance sheet, cash flow). Have a clear understanding of your key financial metrics, such as your burn rate.Then, develop realistic financial projections for the next 3-5 years. Be ready to explain your funding needs and how you'll use the investment
How to choose an investor
Investors are choosing your business, but you are also choosing them.
Match with your company stage
Choose investors appropriate for your startup's phase. Here's a general breakdown:
Early-stage: Angel investors, friends and family
Growth-stage: Venture capitalists
Mature-stage: Private equity firms
Agree on a shared vision for business growth
Make sure that you and your investors are aligned on the company's long-term goals, growth strategies, and company values.
Ask for what you want and be firm about saying no
Be clear about your needs before you arrive at any conversation. Don't be afraid to negotiate. And, if after negotiating, the terms are not favorable, walk away.
Agree on the terms of the deal
Agree on key terms, including equity stake, involvement level, decision-making authority, and exit strategies.
Questions to ask a potential investor
How do you add value beyond capital?
What are your expectations, beyond returns?
How do you handle conflicts or disagreements?
What is your investment track record?
What is your typical investment timeline?
Can you provide references from other founders you've backed?
FAQs about how to find investors
How do I find investors?
There are various ways to find real investors. Develop relationships through Linked In. Network at startup events, pitch competitions, and industry conferences. Research angel investor groups and venture capital firms and reach out to them with your pitch presentation.
How do I contact investors?
The best way to reach out to investors is through a mutual connection. If you are reaching out cold, send a concise email or Linked In message with a clear value proposition and pitch deck. Follow up if you don't hear back after a week or two.
What is a fair percentage for an investor?
A fair percentage depends on your company's stage, valuation, and the amount invested. For early-stage startups, investors typically expect 10-25% equity. Always consult with a lawyer or advisor to determine what's appropriate for your specific situation.
How do investors get paid back?
Investors typically get paid back through exits like acquisitions or IPOs. They may also receive dividends if the company becomes profitable. Some investors may get partial returns through secondary sales of their shares.
What not to tell investors?
Don't exaggerate your traction or financials. Avoid saying you do not have competition. Never guarantee returns or claim your idea can't fail.
Wrap up
Networking is crucial for finding investors. Build relationships through various channels, including Linked In, industry conferences, and startup events. Research potential investors, reach out to them, and follow up to foster a relationship. There are multiple funding options, including friends and family, angel investors, venture capitalists, and startup incubators.
Once you've secured funding and are ready to hit the ground running with your business,consider Rho, a finance platform designed to help you outgrow your forecast.With Rho, you can take control of your business's finances with an expense management platform that helps you make strategic decisions. You'll also gain access to corporate cards, AP automation, FDIC-insured savings accounts, and more, making Rho a true all-in-one platform.Learn more about Rho today.Isabel Pea Alfaro is a guest contributor. The views expressed are hers and do not necessarily reflect the views of Rho.Rho is a fintech company, not a bank. Checking and card services provided by Webster Bank, N.A., member FDIC; savings account services provided by American Deposit Management, LLC, and its partner banks.Note: This content is for informational purposes only. It doesn't necessarily reflect the views of Rho and should not be construed as legal, tax, benefits, financial, accounting, or other advice. If you need specific advice for your business, please consult with an expert, as rules and regulations change regularly.