Getting on the front foot to find investors that are a match made for your business is a must. Don’t hang back and expect backers to swoop in and shower you with capital. First of all, you could grow old waiting and second of all, it’s probably not the best capital strategy for your business. However, there are no two ways about it, finding investors for your start-up or scale-up can be time-consuming and uncertain. So we’ve pulled together tips on where to find different types of investors and how to reel them in.
Find investors here, there and everywhere
Just as there are different types of businesses and different stages that businesses can move through, there are different types of investors.
Friends and family are the low-hanging fruit, easily found in your backyard when it comes to your investor search. While friends and family may stump up the readies and be more than patient around repayments, there are two important downsides to weigh up. If for whatever reason, your venture fails and you can’t repay your nearest and dearest, it could irreparably harm your relationships. It’s also unlikely that your friends and family have sufficient capital to fully bankroll your business beyond its very early days. So depending on your business stage and capital requirements, you may be better off excluding friends and family from your capital mix.
Crowdfunding platforms that involve investors come in two main flavours: reward-based and equity crowdfunding. Reward-based crowdfunding creates a win-win for businesses and investors by enabling companies to receive capital from investors in exchange for early access to their products at a discounted price. Indiegogo and Kickstarter are two examples of platforms where early-adopter investors help early-stage organisations bring nascent ideas to life. With Equity Crowdfunding, such as Birchal and Equitise, investors hand over capital and usually receive shares in return. Equity-based crowdfunding is a popular option for start-ups looking to grow and everyday people looking to invest.
Private investors such as Angel Investors and Venture Capitalist (VC) firms are usually the type of investors that spring to mind for start-ups and scale-ups looking to grow. Our blog, Angel Investor vs Venture Capitalist: which is better? takes a deep dive into the differences between these investors and the types of companies and business stages each usually invest in. In a nutshell, Angel Investors tend to suit revenue-generating start-ups that have recently launched a product or service and are looking to sustain and build on their position. On the other hand, VCs typically focus on scaling up businesses with tremendous growth and profit potential.
Where to look
Your first port of call when it comes to tracking down Angel Investors and VCs is your network. These stakeholders, for example, your accountant, lawyer, suppliers, customers and business associates know you and your business, so they’re more likely to suggest reputable investors that are aligned with your company’s goals.
Beyond your network, the internet can be a great way to find potential backers if you do your homework. The Australian Investment Network has a wealth of information on Angel Investors, while Angel List has more than 1,586 investors and has one of the largest communities of investors and start-ups in the world. Closer to home, Australia’s state capitals and regional cities have their own Angel Investor networks, for example, Perth Angels, Melbourne Angels and Sydney Angels. So start within your home state then widen your search as needed. When it comes to VCs, there are currently around 120 VCs investing in Australia, and about 70 of those have offices here:¹ Blackbird Ventures, AirTree Ventures, Square Peg Capital and OneVentures are some of the market leaders.
Don’t overlook the Federal Government’s Early Stage Venture Capital Limited Partnerships and Venture Capital Limited Partnerships. They work with private venture capital fund managers to provide capital and professional knowledge to innovative companies.
Clinching the capital you need
It’s important to have your ducks in a row before you approach any investor, even if they are family and friends. Statistically, start-ups and scale-ups have a low strike rate (less than 1%) when it comes to successfully landing those all-important VC and Angel Investor dollars². So how do you improve your odds? Like everything else, it’s a numbers game. Try to balance finding the right type of investors for your business with ensuring you have a sufficient number of suitors on your shortlist. Avoid putting all your eggs in one basket and fixating on landing one particular investor.
Perfecting your pitch
Nailing your investor presentation hangs on you effectively communicating information potential backers want and need to have about you and your business. What that boils down to is that you need to consistently and clearly articulate what’s in it for them if they invest in your company. A successful pitch has nine crucial components.
1. Explain your product/service offering
Make sure you clearly explain your product/service and its unique selling proposition.
2. Have a business plan
Describe the unmet market need your business addresses and how big that market is. Provide data to verify the opportunity you’ve identified and explain the resources you have and need to execute your plans. Research potential investors and demonstrate how their investment in your business aligns with their plans.
3. Your business model
Outline your business model and how it will turn your idea into revenue or drive exponential sales growth for scale-ups.
4. Highlight your team
Explain what your management team’s skills, education and experience are and how they will deliver the results your business is working towards.
5. Financial data
Depending on your business stage, be ready with a profit and loss statement, detailed information about expenses and financial forecasts.
6. The investment
Detail how much investment capital you’re seeking and how you will spend it to deliver growth.
7. The exit strategy
Explain how and when your investors will get their money back, for example, via a dividend or selling shares and the return on investment (ROI) they can expect. Be upfront about whether you intend to stay in the business and/or when you plan to exit.
8. Show your expertise
No one wants to back a shaky company or founder who doesn’t know their stuff. It’s vital to instil confidence in would-be investors so they are sure you and your business are a safe bet.
9. Share your enthusiasm
Don’t be afraid to show your passion for your business. It could make the difference between signing up an investor or watching them walk away.
Mix and match your capital
Having compelling financials for investors includes being able to show your business has other consistent sources of capital. But if you only focus on equity finance, you could end up with too many shareholders, owning less of your business, and deterring VCs and other big-ticket investors. Start-ups, scale-ups and businesses with R&D can struggle to access debt finance from traditional banks. The reason is their activities rarely fit the rigid eligibility and approval criteria of these established institutions. If that’s the case for your business, it could be time to explore your loan options from alternative financiers. If your business is doing R&D you could investigate getting an R&D loan from Radium Capital. Our clients report time and time again that once they include Radium Advances in their capital mix, it becomes easier for them to raise capital with investors.
Simple, swift capital you can count on
While raising capital from private investors can be transformative for your business growth, it can take six months or even more to achieve.³ At Radium Capital, our platform-based system makes for a seamless, simple and speedy application process, and our R&D finance experts are there to guide you every step of the way. We don’t think like a bank, so if you’re eligible for the Federal Government’s R&D tax incentive, you’re eligible to apply for a Radium Advance. We approve applications within two business days and deposit your funds in your bank account three days after you sign your loan documents.* Your R&D tax refund more than covers the cost of your Radium Advance, and there are no repayments and nothing to pay until it arrives. So if you’re interested in exploring cost-effective, cash-flow friendly financing that doesn’t dilute your business, don’t delay. Call our R&D finance experts on 1800 723 486 or schedule an appointment for a no-obligation chat today.
¹Fundcomb, 2021: A list of Australian Venture Capital firms [online] available at: https://fundcomb.com/blog/a-list-of-australian-vcs
²Fundera by nerdwallet, 2020: Raising Capital for Startups: 8 Statistics That Will Surprise You. [online] available at: https://www.fundera.com/resources/startup-funding-statistics
³Forbes (2019) How Long It Takes To Raise Capital For A Startup [online] available at: https://www.forbes.com/sites/alejandrocremades/2019/01/03/how-long-it-takes-to-raise-capital-for-a-startup/?sh=45172b707a41
*Radium Advances can be approved within two business days if all application documentation is received and correct. Radium Capital is a specialist R&D financier. In assessing your eligibility and preparing your RDTI claim, we recommend you seek the advice of an R&D consultant.