Investment Strategies for Startup Businesses

Startups often require investment to establish a sufficient pool of working capital, facilitate growth or fund a prototype and other important aspects of a modern business. A recent study released in January 2017 found that, despite the decline in UK small and emdium-sized enterprises lending, 58 percent of SMEs feel confident that they can secure funding in the next 12 months. Fortunately, startups have a plethora of investment options available to them, from venture capitalists and angel investors to crowdfunding and small business grants.

Investment strategies

Attracting investors

Procuring a team of investors can lay the foundation for a successful startup, but attracting the right people and convincing them that your message is worth listening to can be difficult. Communication and networking are arguably the two fundamental basics for showcasing your idea and interacting with potential investors. Make sure to respond to every call, message and email, and always be honest and open in all communications, as overprotecting can quickly torpedo an investor’s confidence and interest.

According to investment expert Tim Jackson, third parties generally hone in on four qualities – team, traction, market and barriers. Investors love to invest in great people with a vision and the confidence to succeed. An idea that already has traction without huge amounts of funding is likely to succeed in its market and be sustainable in the long term without the prospect of other enterprises undercutting and taking a notable share.

When asked for a main piece of advice to offer to startups looking to raise finance, founder Nick Holzherr added: “If you haven’t started yet, look at other competitors in the market. Don’t be under any illusions that you’re the only one doing it, as you won’t be. Look at what they’ve done and try and copy the obvious processes that they’ve put in place, then find the 10 percent or 20 percent that makes you better.”

This extra 20 percent could give you the “X factor” and help set your startup apart from the rest. Other factors that investors will look for include your ability to formulate and execute a plan, your ability to become a market leader and investor relevance, as both parties will desire a “natural fit.”

Attracting and choosing investors
photo credit: 401(K) 2013

Picking the right investor

It’s flattering when an investor is eager to fund your business, but you must also conduct due diligence and have a strategy in place to ensure that you select the right group or person. Added value is a great place to start, as bringing in additional benefits such as knowledge on top of money could give you an edge. Always ask about what sets a potential investor apart from the next capital source in the line. David Kiger, for example, has used his expertise to back a variety of successful ventures.

Sourcing well-connected investors is also recommended, as knowing more of the right people could transform your business prospects and aid your ability to market and sell a product effectively. You should also take a closer look at investors’ financial history. Have they invested in anything recently, and how are their other investments performing? Determine exactly how much time and money that they are willing to commit to the venture and be clear about how this could change in the future.

Be sure to avoid investors who have sights on a takeover or are too eager to take up a large percentage of your business stake. Also, make certain that they are not greedy or unscrupulous. A bad investment decision can have a detrimental impact on a business, so adopt a “slow and steady” strategy to begin with.