The process of setting up a new venture itself is quite a challenging task and the process of pitching it to an investor, especially the first few ones, is the most daunting task for any entrepreneur. And any entrepreneur who has ever raised a penny from any investor will know what a scary process it is. And raising fund is quintessential for growth to the next phase. So how does one pitch right to the investors to make them believe in your product/service and partner with you.
But the first and foremost important thing you have to know is your product, product proposition, growth avenues, competition landscape, product extensions, geographical viability across regions and fund requirement for specific departments to advance growth.
When you have answers to the above questions, the next logical step is to reach out to an investor. It is equally important to find the right investor for your venture. But how do you find who is a right investor for you.
Finding the RIGHT investor:
An investor’s role should be defined larger than investment into your venture. Make sure you know what you wish should be the limit of contribution of your investor in your venture. A potential investor might come with a strong network that can help source business for you, provide guidance across legal framework, mentor you across technology hurdles and/or help improve your product/service definition with his experience or through established channels amongst other possibilities. An investor’s role in your venture is also dependent upon the value of equity dilution from your end.
There are various sources for startups to raise funds:
Bootstrapping: Bootstrapping or self-funding is an early stage phenomenon wherein the entrepreneur brings in his own funds to kick start his venture.
Family & Friends (F&F): One of the most seeked avenues at the early launch stage of any venture is the Family and Friend’s account. Though the value of funds is small, it has supported numerous successful ventures in their inception days.
Banks: This debt based resource is not often not a viable option for startups as they provide funding based on collaterals or depending upon sales and/or existing profits.
Angel Investors: A boon to the startups, an angel investor comes with various tags like seed investor, business angel, private investor and informal investor, is an affluent individual who provides capital for a business start-up. Normally, an angel investor or groups of angel investors might go as high as £1 million investment usually in exchange for convertible debt or ownership equity.
Venture Capitalists: Venture capitalists provide capital to startups that wish to expand but do not have access to equities markets. Venture capitalists are willing to invest in such high risk companies because they can earn a massive return on their investments if these companies are a success.
Retail Investors: Individuals with business knowledge and similar industry experience who invest small amounts in startups either alone or through a small closed group for equity ownership. This group is quite helpful as they themselves are a part of the industry and provide all possible support across business requirements.
Crowd Funding: One of the last options that few startups consider is crowd funding. Pitching your idea to public to raise small amounts of funds has been successful in the past. Crowd funding is a challenging task as one has to raise small amounts of money from a large number of investors mostly through online platforms.
Micro-finance: One of the expensive options, Microfinance companies provide funding requirements when a startup does not qualify for bank loans.
Government backed Capital: The Government of India has launched a INR 10,000 crore startup fund to help boost the startup ecosystem of our country. The government of India backed MUDRA policy has INR 20,000 corpus focused at providing benefits to 10 lakh SMEs.
Whoever you choose as your investor, three basic facts that remain true across the investor landscape are: Business proposition, growth possibility and founder intention.
Namit Jain, the author of the above article, is the founder of India’s leading and biggest bike rental services ONN Bikes. He has, till date, raised over $ 15 million with a year of the launch of his venture.