Investors – who they are and how to find them

Starting your own business, especially at the beginning, involves a lot of costs. These can include buying equipment, renting the necessary space or paying employees when the business is not yet profitable. So how do you find the funds to finance your business? An investor may be the answer. In this article you will learn:

• Who is an investor?
• What types of investors are there?
• How to find an investor?
• How to convince an investor about your project?

Investor – definition

An investor is a person or organisation that invests capital in various types of assets with the hope of making a specific return. Investments can be, for example, shares, real estate, start-ups, bonds, raw materials or securities.

Types of investors

Investors differ in terms of their risk profile, investment strategy, time horizon and preferred type of investment. For example, some investors prefer ‘safe’ investments that are expected to deliver low but stable returns, while others are willing to take more risk in the hope of achieving higher returns.

We distinguish between the following types of investors:

• Individual investor – a single person who invests his or her money, usually to achieve personal financial goals. Investments in this case may include shares, bonds, real estate or mutual funds. Their investment decisions are often driven by personal goals, risk tolerance or time horizon.
• Institutional investor – large organisations such as pension funds, hedge funds, banks or insurance companies. Because of their scale, investment investors exert considerable influence over the market in which they invest. Their actions are usually governed by stricter rules than those of individual investors.
• Proxy investor – invests on behalf of others. An investment fund manager, for example, invests funds raised from a number of different investors. Investment decisions in this situation are made by the proxy investor, but the benefits or losses affect the people the investor represents.
• Strategic investor – invests in a company not only to achieve a financial return, but also to achieve a specific strategic objective. For example, this could be access to new technology that will help the investor’s business grow.
• Portfolio investor – an individual or company that invests in a range of different assets in such a way as to minimise risk and increase potential reward. Assets may include, for example, shares, bonds, real estate or raw materials.
• Financial investor – invests with the aim of achieving a financial return. His or her main objective is to obtain the highest possible return on investment.
• Business angel – a person who invests his or her own funds in fledgling, start-up companies in exchange for an ownership stake. Business angels often also provide support and strategic advice.

Finding an investor

Finding the right investor is, in many cases, the foundation for opening your own business. However, it also poses quite a challenge How do you find the right investor then? Among other things, consider

Networking

When you are looking for funding for your project, start with people you already know and trust. This could be friends, family or people you have met at various business events, conferences or training courses.

However, leveraging your network is not just about focusing on the people you already know. It is worth continually expanding your network and striving to make new friends. Industry events, networking meetings or online forums related to your industry will be helpful here. You may meet potential investors there or people who will refer you to them.

Remember that networking is a process that takes time and patience. It is not a one-off activity, but an ongoing effort that can bring you real benefits in the long run. Remember to treat the other person with respect and aim to build long-term business relationships.

Investment platforms

Investment platforms are an important tool that can help you find an investor. Some of the most popular include:

• Crowdfunding platforms – websites where individuals or organisations can raise money from the public and use it to fund projects such as producing new products, making films, creating music or startups. Examples of such platforms include Kickstarter, Indiegogo or Poland’s Patronite. In return for their support, investors can receive rewards, free products or services, or even shares in the company.
• Equity crowdfunding platforms – sites where startups can offer shares in their company in exchange for investment. Examples include Seedrs, Crowdcube or the Polish Beesfund.
• P2P (peer-to-peer) investment platforms – on such platforms, individuals can lend money to other individuals or companies, often with a higher return than saving in traditional savings accounts. Examples include Mintos, Bondora or the Polish Aforti.
• Business angel platforms – focus on connecting startups with investors who want to invest more capital and are interested in a larger stake in the company. Examples include AngelList, SyndicateRoom or Poland’s Fiedler Capital.

Startup competitions

Startup competitions are another way to find investors. This is because these types of events often attract many investors who are interested in discovering promising new business ideas.

Startup competitions usually involve startups presenting their ideas in front of an audience and a jury, which usually consists of experienced investors, entrepreneurs and industry experts. However, competitions for startup owners mean more than just the opportunity to win funding. They are also an excellent opportunity to gain valuable feedback, make business contacts and increase the visibility of their company.

Convincing an investor to the project

Convincing an investor to get involved in your project requires not only an interesting idea, but also knowing the investor’s expectations, creating a business plan and an appropriate presentation.

Expectations of the investor

Knowing the investor’s expectations is an absolute must. Every investor has unique goals, individual priorities and an acceptable risk profile. All of these elements, in turn, influence their investment decisions.

Many investment firms and individual investors are also guided by specific strategies regarding what types of companies or industries they invest in. For example, some may focus on investing in early-stage technology start-ups, while others will prefer more traditional sectors. Knowing the strategies of investors will allow you to target your project to the right people who are interested in it.

Investors are in the market to make money from their investments. You therefore need to determine the value of your business (you can do this through a valuation of a startup) and understand what the chosen investor’s expectations are in terms of return on investment (ROI) and what their risk profile is. Target only those investors who will potentially be willing to fund your project.

Business plan

The next step is to prepare a suitable business plan. It should include:

• An understandable and convincing description of your business idea – the investor needs to understand what you are doing and why you are doing it. You should clearly explain what your solution is, why it is original and where you are positioned in the market. Show that you know your industry and your product or service will find a real use.
• Implementation plan – a plan for how you are going to turn your idea into a viable business. This plan should include, but not be limited to, information on the company’s management, marketing strategy, production and distribution.
• Financial projections – investors will want to know realistic projections, in terms of revenue, expenses and profits. You should provide them with a financial plan for the next three to five years that shows how quickly your business will start generating profits and an initial valuation of the business so they know its estimated value.
• Exit strategy – also think about what a possible exit strategy for the business will look like. This will give the investor some reassurance and they will see that you are taking an ambitious yet rational approach to the planned project.

Presentation

A proper business presentation is your chance to get the investor interested in your idea, present your team and show why it is worth investing in you.

Remember that investors often listen to many presentations and do not have time to process complex information. Your presentation should be clear, concise and understandable. In addition, it should show how your product or service solves a problem, what your target audience is and how you intend to generate profits.

Investors don’t just invest in ideas – they also invest in people. Present your team. Show that you have talented, committed people who are capable of turning your idea into reality. Present their skills, experience and achievements.

Don’t forget that investors are likely to have questions at the end of your presentation. Be prepared for them – think about what they might ask and formulate clear, comprehensive answers. Knowing the investor’s expectations, developing a business plan and giving a convincing presentation will undoubtedly persuade the chosen investor to invest their capital in your project.