The usual story we hear about business growth is all about “unicorn” startups, run by quirky-but-genius tech leaders from Silicon Valley. Venture capital firms throw money at these companies, betting that one day they’ll be profitable and have a huge exit or IPO.
But the truth is, only a tiny number of startups actually reach unicorn status. Chances are, when you’re building your business, you won’t get millions in funding right away. In fact, 77% of small businesses rely on personal savings to get started, and a third of them begin with less than $5,000.
Raising money is tough. Whether you’re aiming for a traditional venture-backed path or thinking about other funding options, finding the right investors and growing your business can take years.
So how do you get investors excited about your business, especially if you don’t fit the typical “founder” image?
Know why you want funding in the first place
“I’m a woman who founded a Maine-based firm that makes breastfeeding technology. People aren’t exactly banging down my door to offer me funding,” laughs Amy VanHaren, CEO and founder of Pumpspotting, a startup focused on breaking down barriers to breastfeeding and baby feeding at work. “I started with my own money because I wanted to make sure the product fit the market and the idea was clicking. It was risky, but it felt amazing to see that success using my own funds.”
VanHaren launched her business in 2016 using her savings and explored other funding options like Kickstarter, applying for grants, entering pitch competitions, and raising money from friends and family. By July 2021, she had closed her first pre-seed round, securing $1.5 million from venture capital and angel investors.
Startups can raise millions and still fail, often because they rush into funding before they’re ready or feel pressured to raise capital just to prove their idea is valid. According to TechCrunch, 60% of companies that raise pre-seed funding don’t make it to the next round.
VanHaren advises not to chase funding too early. “Think carefully about what the money will help you achieve and why you need it. Funding is most effective when it helps you reach your next milestone and matches your growth stage,” she says. “We waited to take funding until we were on a real growth path, where it would make a big difference for our community.”
Anna Ford, co-founder and CEO of online book club community Bookclubs, followed a similar path. She started with Kickstarter and friends and family before landing a $1.5 million pre-seed round in 2020.”I realized there was a huge opportunity with some resources to develop the product when I saw how fast we were growing organically,” the woman explains. “Don’t fundraise just for the validation. Use the money to answer a question or add value. Let the story drive the funding, not the other way around.”
Before seeking funding, make sure you’ve thought through your business model and goals. Ask yourself:
- Is my product-market fit solid?
- What’s our current budget?
- What’s the next growth milestone, and what will it take to get there?
- What will this funding specifically achieve? (A new hire, product development, marketing, etc.)
- How much more do I need to do that?
- Am I ready for outside opinions to influence my business?”
The different types of investors for startups
Before you start looking for investors, it’s a good idea to think about the different ways you can fund your business.
There’s no single “right” way to choose funding, and you might end up using a mix of these options as your business grows:
- Bootstrapping: This means funding your business with your own money, like personal savings, your home, or even your computer. You keep full control and run a lean operation, but it might limit your growth or force you to take shortcuts that could hurt you later. It’s also the riskiest option since it’s all on your shoulders.
- Crowdfunding: Platforms like Indiegogo, Crowdfunder, or Kickstarter let you raise small amounts from a large group of people, sometimes as little as $10 or $20. It’s a great way to build a customer base and raise funds, but you usually have to reach your goal to get the money. Plus, you often owe backers a reward, like a product or gift, in return.
- Small business grants: As a small business, you can apply for federal, state, or nonprofit grants. Each grant has its own process, but they often come with extra perks, like mentorship or access to equipment. Best of all, grants don’t need to be paid back.
- Small business loans: You can apply for a loan from a bank or the U.S. Small Business Administration, which offers programs like 504 loans, 7(a) loans, and even short-term options like COVID relief. Loans can give you the cash you need, but you’ll have to repay them with interest.
- Startup accelerators and pitch contests: Joining an accelerator program can help you get funding, enter pitch contests, and connect with a network of experts. It takes time and effort to apply and participate, but it’s a great way to build connections, fine-tune your product, and access local resources and funding.
- Friends and family: Similar to bootstrapping, this involves raising money from your personal network. It’s often a small “pre-seed” round to get your business off the ground, and usually, you don’t have to give up equity or control.
- Angel investors: These are accredited investors who use their own money to invest in your business. They’re often willing to take bigger risks and invest in ideas they believe in. However, you might have to give them a role as an adviser, board member, or offer equity in return.
- Venture capital: This is the most traditional route for startups. Venture capital firms invest large sums of money but expect equity and influence in your company. They may also want a say in business decisions or a seat on your board.
How to Find Investors for a Business
Finding investors can be tough, especially for female and BIPOC founders. Even though there are different types of funding out there, you often need to connect with many investors before finding the right one.
To kick off your search for investors, here are some steps you can take:
Use LinkedIn to find investors with shared interests
“It’s really about building relationships,” says VanHaren. “Since we’re a femtech company focused on the future of work, I look for angel investors or VCs who are passionate about this space. I search on LinkedIn or Google for people and firms that care about the work we’re doing. You need to make an effort to be seen.”
You can use LinkedIn’s advanced filters to find investors. Set the countries they’re based in and search for firms by using terms like “capital,” “venture,” or “investor” in the company filter. You’ll have a solid starting list from this.
Make sure your LinkedIn profile is updated too. Create an engaging headline, write a compelling summary, and share content that highlights your company. That way, when investors check you out, they’ll take your outreach seriously.
Expand your network by asking for introductions
Building your network is key to finding investors. “We discovered that everyone in those circles knows each other as we began building contacts with angels and venture capitalists. So, you have to ask for introductions,” says VanHaren. “These connections can come from geographic areas, groups like female founder networks, or even boot camps.”
When asking for introductions, be specific. Instead of asking for general investor contacts, research VCs who invest in your industry. Let your connection know why you want to meet a particular investor, and have a ready-to-send email in case they agree to introduce you.
Meet investors where they are
If you’re just starting out, find where investors hang out—co-working spaces, hackathons, industry trade shows, or conventions. Startup incubators and accelerators are great places to meet mentors and participate in pitch competitions, where investors often attend.
For example, MeetFounders in the UK hosts events that connect startups with VCs, while TechCrunch Disrupt in San Francisco brings together founders, developers, and investors each year.
Get involved in your community
Don’t overlook local opportunities. Business schools usually have alumni networks and guest speakers who may connect you to investors. Local chambers of commerce, associations like the National Federation of Independent Business, and SBA community groups are also great for networking with entrepreneurs and potential investors. Plus, these groups often offer free educational content and business resources.
Lean on friends and family
Your friends and family can be great allies. They might be your startup’s first investors or introduce you to someone they know.
Just be careful to avoid straining personal relationships. Be clear about what you’re asking for—a loan, an introduction, or an equity investment. Provide a solid business plan and make sure everything is written down to avoid misunderstandings.
Consider crowdfunding and brand building
Crowdfunding has become a popular way to raise initial funding for innovative products. A successful campaign can also create buzz and attract more investment down the line.
Building your brand through crowdfunding, advertising, social media, blogs, or newsletters helps you tell your story, create a following, and get the attention of people who are looking for the next big thing.
How to Choose an Investor
When you’re looking for investors, it’s important to find the right fit for where your business is in its growth stage. You don’t want to take on more funding than you need at any given time. “Some investors are only interested in big, high-risk projects,” says Ford. “But I wanted to build my business step-by-step, so those investors weren’t a good match for me. It’s okay to say no if it doesn’t feel right.”
Once you start talking to investors, make sure they align with your business vision and values. “You’re evaluating them just as much as they’re evaluating you,” says Ford. “As a female founder, I wanted gender diversity among my investors. I’m proud of the team I’ve built with that in mind.”
It’s easy to get excited about securing funding, but keep in mind that many investors will want something in return, like a seat on your board, a say in decision-making, or a financial payoff. “I’ve had conversations with potential investors where it felt like they didn’t really understand where I wanted to take the business, or they had strong opinions that didn’t align with my vision,” says VanHaren. “If you take their money, they might steer your business in a direction you’re not comfortable with.”
Think of your investor calls as a two-way street—it’s not just about you pitching to them. You should ask questions like:
- How do you communicate with the founders you invest in, and how often?
- What kind of support do you offer beyond just money?
- Which of our growth milestones are you most excited about?
- What’s impressed you about the founders you’ve worked with before?
- When things get tough, how do you show up and offer help?
These questions will help you understand if the investor is truly a good fit for your business.
Also Read: Registering a Business Name: 2024 Guide
Fundraising is one of the most challenging elements of being a founder
Fundraising is tough for any entrepreneur, whether you’re just starting with a pre-seed round or going for Series C or D. “There will be moments when you doubt your path, but remember, everyone goes through that. It’s just part of the journey,” says VanHaren.
Keep in mind why you’re doing this and what the funding will help you achieve. “I started this business as a personal project back in 2015, and I didn’t get any funding until 2020,” says Ford. “But now, we’re reaching 275,000 readers with book clubs in over 70 countries. It’s been a tough road, with a lot of my own time and money invested, but I’m passionate about this company and the community we’ve built.”
