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  • Business - Entrepreneurship
  • Updated: April 12, 2022

How Can A Startup Attract An Investor?

Any novice businessman seeks to attract the attention of investors in order to obtain funding for his project. This is one of the important tasks in the early stages.

As the project grows, the need for investments only increases, so any company has to raise additional funds.

However, difficulties often arise at this stage, especially if the business is developed by an entrepreneur with no experience.

In this article, we will consider the possibilities of finding financing and will find out which types of financing support are popular today.

Sources Of Attracting Investments

In order to understand how startups can attract investments, it is necessary to determine what stages of attracting investors exist, as well as who can act as such an investor.

There are four common sources of finance in which a startup can receive investments: FFF, business angels, funds, mergers and acquisitions (M&A).

FFF: Friends, Family & Fools

The first person who can come to the aid of a novice businessman is family or close people. Here, it is important to be confident in the success of your project so as not to let down those who trust you.

More often than not, this type of financing does not involve the formal due diligence process associated with a business investment or commercial loan.

Typically, friends and family do not conduct a detailed analysis of your credit history and do not require collateral.

Another significant advantage of this type of financing is a flexible system of interest rates and a choice of debt repayment options.


Business Angels

Business angels are called private venture funds, which are created in order to provide material and technical support to young startups at the earliest stages of their development.

The term has been in use since 1978. The main role of business angels is to help start-up businessmen at the first stage when the product has already been tested but has not yet attracted enough investment.

Business angels only need confirmation of the project’s operability, taking into account the increase in coverage and resources.

Funds

Another type of financial support is funds. Funds are collective investments that are collected through the purchase of securities in high-growth projects.

Thus, they minimize the risks of entrepreneurs due to the expert assessment and professionalism of market participants.

Most often, funds choose fast-growing projects that are ready to scale and have a proven business model.

There are different types of funds: investment, mutual, mutual, exchange-traded, hedge, and others. Some funds may even make risky investments in startups.

Takeover By A Large Company

If the project has been on the market for more than 5-7 years, then the chance to profitably sell it, of course, grows. This leads to an increase in the volume of investments, as a result of which it becomes possible to diversify the market.

Large companies understand the potential of startups and are ready to support them. It is the most common way for casinos - a lot of the best online casino companies were raised due to a takeover. 

Oracle's acquisition of Cerner was the largest M&A deal in 2021 in the global IT sector. The deal amounted to $28.3 billion (the tender offer was $95 per share). Cerner is a key player in the digital healthcare market.

How To Attract Investors?

The main thing that a project should have in order to interest an investor is a fresh idea. The market today is so saturated with different products that everyone wants to see a new product. However, it is worth distinguishing between a fresh and a unique idea.

The fresh idea of ​​the project is a new look at a well-functioning business model that has already managed to prove itself in the market and become in demand.

Whereas unusual and unique ideas can fail without having enough experience in the market.
 

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