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 LinkedIn 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 LinkedIn 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.

‍

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.

‍

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.

‍

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.

‍

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.

‍

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%.

‍

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.
‍

Crowdfunding

Crowdfunding is a fundraising method done by asking for small contributions from a large number of people, a “crowd,” typically through online platforms.

‍

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 LinkedIn. 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 LinkedIn 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 LinkedIn, 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 Peña 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.

‍