The issue of business financing is relevant at all stages: both at the start-up and at the project scaling stage. And one of the universal tools is attracting investors. In the article, we tell who an investor is in business and how to competently cooperate with him.
Types of investments in business
Investment for business is a tool for starting and developing with the help of financial investments. This is the support of the company for a certain period, where everyone gets their benefit. An entrepreneur – new opportunities for his project, an investor – profit in the future.
Investments differ in terms of duration, risk, investment object and level of profitability. But in general, they can be divided into two types:
Direct (real) investments are investments in tangible and intangible assets of the enterprise. At the same time, money is invested in various fields: industry, copyright, renewal or reconstruction of business. If an investor chooses this type of investment, he or she is focused on a long-term strategy.
Financial (portfolio) investments – investing in bonds, shares, securities and precious metals. This is about profit with the help of dividends and the increase in the initial cost of the product.
Investments in a business project are also characterized by the degree of immersion of the investor in the process. For direct investments, he himself decides where and in what he will invest, and for indirect investments, he transfers funds through an intermediary. And here the role of the investor is taken by investment funds, private individuals, mutual investment funds and other financial institutions. At the same time, the intermediary itself is determined with the object for investing money.
The community is now in Telegram
Subscribe and stay up to date with the latest IT news
In what cases and who needs an investor
The most obvious reason to attract foreign investment is the lack of resources. As long as you know the strategy, positioning and product, you will have a sure financial cushion. But you need to look globally at the stage of your project – the goal of investing will depend on it.
Initial (seeding) stage. This is the most vulnerable stage for business: the idea is there, but not everything is clear with its implementation and there is not enough finance. Investments here are necessary for testing your product hypothesis, tweaking the idea and financially supporting the team. For an investor, this is an unstable stage in which he can lose the invested funds.
Stage of initial development (startup). The business is launched, but the situation is still unstable: everything depends on product testing, entering the market and the first relationship with the client. At the same time, there are no guarantees of stable income and confidence in finances. Therefore, the investor’s money helps to realize the product, release a trial version and find customers.
Expansion stage. The first bumpy road has been passed, but in order for the product’s market share to continue to grow, investments are needed. With them, the chance to increase cash flow and further advance the business increases. The global tasks here are to launch production, implement marketing and promotion tools, and expand the team.
Growth stage. Here, the company and the investor have completely different perspectives. The growth stage is a confident position over the market with stable profit and active development. It would seem that why is an investor here, if everything works without much effort? In order for revenue to continue to grow and the company not to slow down. Investment will help to enter the foreign market and change the product taking into account the needs of customers.
Stage of mature growth. Even the most successful business needs new stages of development, otherwise it will stagnate. At the stage of mature growth, sales revenue is stable, but without significant changes. That is why it is necessary to attract an investor: there will be an opportunity to act in a new way. For example, consider a merger with another company or find new outlets.
Where to look for an investor
Decide on the investment amount and start with the easiest option. For startups with investments up to 1.5 million rubles, it is better to start a search among friends and acquaintances, for stable companies with investments from 1.5 million rubles – to go to private investors on Internet resources. Let’s analyze each option in order.
Friends and acquaintances. Of course, this is not about mass mailing in the phone book. Think about who will be interested and who is close to your niche. The main thing is to remember the risk of ruining the relationship if you cannot return the money.
Online events. A fast and reliable way to find an investor. First, here you will receive systematic support from experts: from team building to product promotion strategy. Second, this tool is free and does not require a face-to-face meeting. Our Timeweb Hub project has all these features – present the project, and we will find experts and money for its promotion.
Business events. If possible, attend business breakfasts and professional conferences. Investors who are looking for promising projects often come there. Such business meetings can be found in any city with the support of OPOR of Russia and local communities for entrepreneurs. This also includes business incubators, which aim to support the projects of young entrepreneurs at any stage of development. You can also find online events if you are interested in specific speakers.
Business platforms. These are sites that are similar to exchanges for freelancers. On them, companies present themselves and their business, and investors choose projects that are interesting to them. There are really many such platforms, try a few. For example, on Rusinvestproject.ru you can choose an investor for your project – depending on the amount and niche. But Napartner.ru is a large platform with more than 4,000 investors considering both startups and stable companies.
Clubs of investors. These are communities of private venture investors (business angels). Members of such clubs consider promising joint investment projects. They are often closed, because for investors it is a professional community. To get here, you need to leave an application on the club’s website. Examples of clubs:
- Money – for projects in the field of real estate with profitability of 30% per annum;
- Global Networking Club – for venture projects, lots of networking and events;
- Angelsdeck – for startups of various fields, monthly contests are held where you can talk about your project;
- Soba “Union of Business Angel Organizations” – for promising companies at an early stage of development.
Marketing tools. Start highlighting your project: on social networks, on a blog and on online resources for entrepreneurs. Your goal is to engage your audience and be on topic not only for your product, but for your business in general.
How to attract an investor
Always start with the goal of your business: each stage has its own characteristics, and this is important to consider when looking for an investor. Even if you have a startup and need finance for everything at once, decide on the main tasks. It may be:
business model or product testing;
packaging ideas for market launch;
hiring additional people to the team;
trial version release
Decide on the type of investor
Usually, investors are engaged in specific areas of business, so first of all consider those with whom your interests overlap. And for a clearer understanding, make a portrait of the investor, in which you write down the age, source of income, professional rocks and personal qualities.
Choose the type of financing
Approach this question strategically: what is profitable for you and what will interest the investor? Investments for a business project can be equity and debt (loan).
Equity financing – the investor’s money in exchange for a share in the company. This option turns the depositor into a full co-owner of the company. As a result, he will be able to make business decisions and influence the management of the company, and in case of success, he will pay back his investments several times. This option is primarily suitable for young companies in order to reduce the investor’s risks. Because not everyone will want to invest in a project whose future is in question. For the company itself, there is a big plus here: the investor can enrich the project with his experience and connections.
Debt financing – loans and credits that must be repaid within the stipulated time with interest payments. A good option for companies that are at the stage of stable growth, but there are not enough funds for development. For an investor, the risk here is minimal, so large sums can be considered.
Make a project presentation (investment teaser)
This step is like a business card – it characterizes your business and affects the interest of the investor. Don’t make the teaser too long, specifics are important here:
Business scope and clear product description.
Purpose of investment.
Your previous and current professional experience (specific results and achievements, who is with you on the team).
Conditions of investor participation (loan/partial participation, terms, terms of return).
You need the amount.
Possible risks (situation in the industry and with the product itself).
What will the investor receive (amount of profit, payback period).
Prepare for negotiations
A meeting with an investor is the selling of your business idea and the key moment of investing in a business. Therefore, you must be confident not only in yourself, but also in your product. Start with a financial calculation to justify the investor’s investment. A random amount and vague goals will not work here, so prepare a financial plan and a business strategy. This will show the seriousness of your intentions and expertise.
Start a discussion
There is no single option for negotiating with an investor. This is an individual process, the outcome of which cannot be fully predicted. But do your best to get the desired result. Define a clear position for yourself, voice it and agree on investment terms. All points must be recorded in the preliminary term sheet agreement – there will be details that will secure your agreements.
What is important to remember
Don’t forget that the investor wants to get income from his free capital, so look at it from his angle. Experienced investors primarily consider projects with a built-in promotion strategy and a popular product, as well as companies with attractive assets that will strengthen the investor’s other investments.
The second important thing is to formulate a clear business model of the project. It should be clear to the investor what your product is about and how it will work. It will not be superfluous to add numbers and analytics of the current situation. And be sure to ask why the investor is interested in investing in your business. It is also important for you to understand his motives.
From the article, you learned about when you should attract an investor to your business and how to do it. If you need a simple and fast tool, come to Timeweb Hub – we will share our expertise and help you develop your project. We are interested in all digital areas: Saas, MarTech, No-code, Web3 and others. Leave an application with a presentation of the project on the website so that we choose you.