Why does a start-up need investors

Find investors - this is how you get capital for your startup

Which type of investor is best?

Not every type of investor is necessarily an option for your company. Many only invest in the later growth phases of the company, while others join the company immediately after the idea arises. So here you should keep an eye on what types of investors there are so that you know which ones to look for in order to target them and attract them to your startup.

In the immediate vicinity: Friends, Family and Fools

One of the most obvious areas where you can find investors for your startup early on is your direct, personal environment. Friends and relatives know the founder personally. An assessment of the team and their competencies is therefore possible from a special point of view that other investors do not have. The founders also have a leap of faith if it can be seen that the team is “committed to the cause”.

But accepting money from the personal environment also has its pitfalls. “Friendship ends with money” is a well-known saying. The problem is not the money itself, but the frequent lack of transparency about the actual risk of a start-up. The majority of all start-ups fail, the capital is quickly used up and sales initially fail. So even if the project was promising, the liquidity runs out in the meantime. The initial euphoria of private investors quickly turns into disappointment. This also not infrequently affects the personal relationship. Because: Not everyone succeeds in making a clear distinction between personal and business issues.

Business Angel / Angel Investors: Wealthy individuals with a mission

Angel investors, sometimes also known as business angels, are mostly wealthy private individuals who want to invest capital in new startups in order to create something new together as a team. Angel investors are therefore often intrinsically motivated and open to actively assisting the team as a consultant. Angel investors can therefore be very valuable for startups, as they not only raise the necessary capital, but also bring in important know-how that is otherwise difficult to access.

Angel investors usually participate in startups within a range of € 50,000 to € 200,000 that are in the very early phases, i.e. in the pre-seed or seed stage. The participation is then usually in the form of a share in the company, as a convertible or as a loan.

It is important to understand that angel investors ultimately invest their own money and therefore work a little differently than venture capital funds, for example. In other words: Angel investors can sometimes have very different strategic or individual focuses. Angel investors who only invest occasionally usually take significantly longer to come to a decision and tend to be non-binding. Active and more professional business angels, on the other hand, make an average of six deals per year and are therefore also familiar with corporate law processes.

Since private investors rarely appear officially because, unlike venture capital funds, they are not obliged to actively invest in startups, it is often a challenge to find business angels. Even so, there is a lot of searching for this type of investor. A targeted approach and research of the previous activities of the angel investor, but also a certain variety of available investors increases the probability of a meeting enormously.

Professional investors with big investment tickets: venture capital funds

Venture capital (VC) or venture capital refers to a subset of private equity in which the investment entered into by the investor cannot be traded on regulated markets (stock exchanges). The difference in the term venture capital is not clearly defined, but it specifically means the private equity component, which consists of young companies that are not yet generating any sales or profits. Although these can already be positive in terms of sales or profits, they still require additional capital for the scaling and growth phase.

As with angel investors, the strategic characteristics, the capital provided, the industries or the preferred stage of a venture capital company can be very different. What all VC companies have in common, however, is that they in turn manage the capital of their investors. This mandate changes the interests compared to an angel investor. VC companies have to find and invest exciting startups on a regular basis in order to actually put investors' money to work. The goal of a VC company is then to sell the shares of the respective startup a few years later at a profit or even to work towards an IPO.

In which startups the capital is invested differs from VC to VC. Micro venture capital funds usually manage assets of between 10 and 25 million euros per fund and sometimes place capital rounds from 100,000 euros, but mostly higher.

Classic VC funds usually manage larger sums of 50 to 300 million euros. For early seed financing, the corresponding funds usually invest EUR 500,000 to EUR 2 million. Smaller investment sums are rather atypical, simply because a large fund must ultimately be able to accommodate its capital. If funds were to invest smaller sums, the VC's startup portfolio would quickly become confusing.

Venture capital companies are professional investors and are therefore often sought after by many founders. They therefore know the process inside out and usually have a very precise strategic focus. It is therefore essential that a founding team recognizes the exact investment focus before making contact and only turns to those VCs who generally invest in startups with corresponding criteria. In any case, the founders should recognize the preferred vertical, the industry and the business model of the VC and answer the question in which stage, i.e. phase, the VC usually invests.

Intensive research is time-consuming, but usually pays off when you contact us at the latest. Because in the end it is like a personal interview: Certain prior knowledge about the respective venture capital company creates a positive impression and increases the chances of being able to enter into a personal interview. If this succeeds, VCs are often quick and will usually decide for or against financing after a few meetings.

Possible ways to find investors for your startup

After fundraising is before fundraising. Anyone who works in a startup quickly realizes that work almost never runs out. The search for capital is then an additional, active effort for which there is hardly any capacity left. But especially when looking for capital, a half-hearted approach is seldom crowned with success. It is important to be as efficient as possible when approaching investors and only to address “the right” investors. In doing so, the focus should be on the personal touch, i.e. a personal approach.

Support from professional partners

In order to support young entrepreneurs in addressing investors, providers such as Capmatcher have established themselves who actively support and advise in the search for potential, suitable investors. While the founding team can continue to take care of the startup's success, trained startup scouts and financing specialists check the investor landscape at the same time. In doing so, they select suitable candidates without the founders having to give up control. Providers like Capmatcher.com offer interested startups a specially developed form that asks for the most relevant investment criteria. Any further data entry is thus superfluous. Both the use of the form and the manual creation of an exposé, as well as a listing in the Capmatcher database, are free of charge.

Visit founder and startup events

One of the best ways to find potential investors is by attending various founder and startup events. There are countless potential investors romping around here, most of whom are only at these events for one reason: They want to get to know new startups in which they can invest. So for you it means to stay at such events as often as possible and to talk to as many people as possible. Many high-quality contacts can be made here with whom it is ideal to work together in the future. On the one hand there are of course the investors, on the other hand there are also other startups with whom it is also easy to cooperate. The only important thing here is that you actively approach people and can convince them of your idea. After all, there are a lot of investors who are wanted by startups. So don't take too much time with this.

There are such events on the one hand, such as the "Bits & Pretzels" in Munich or the "The Founder Summit" in Wiesbaden. There are also numerous other network meetings in almost every major city. Here, young founders regularly get the chance to pitch their business idea to investors. So just keep your eyes open and attend as many events as you can.

Participation in competitions

As just mentioned, there are regular meetings in many cities where young entrepreneurs and startups can pitch their ideas. This can either be in front of the investors or in front of a large number of spectators. In many competitions, the participants even get prize money and often also the attention of the media. For many startups, such competitions are the perfect opportunity to get their company off to a real start.

One of the largest and most famous competitions is the TV show "The Lion's Den". Here the participants have the opportunity to present their company to five successful investors. Those who convince them have the opportunity to get investments in the millions. And even if it doesn't work out, the show will reach millions of viewers. But of course it doesn't have to be the big TV show: Smaller local competitions can also be an ideal way to start a successful business and help you find the investors you've been looking for.

Present the idea correctly

When an investor has been found who is interested in your startup, the motto is: convince! Most of the time, you only have one chance with each investor to convince them of your business idea. So this opportunity has to be used optimally. There are different ways in which you can present your idea convincingly. In many cases, the forms of presentation can also build on each other, since the investors want to learn more gradually, in the best case scenario.

  1. One pager: With the One Pager, you list the most important key data of your company on just one sheet of paper. This should give the investor a first impression of your company and then decide whether they would like to learn more about it.
  2. Pitch deck: The pitch deck contains a presentation of approximately 10 to 15 pages. This is about getting closer to the idea of ​​the company and giving the investor more in-depth information
  3. Business plan: Finally, the business plan follows, which is about the complete execution of the business idea. This is also where the financial figures come into play, which you should check and recalculate down to the smallest detail. The investors attach particular importance to the financial plan and often decide for or against a company on the basis of this plan.

Negotiate terms

The last step when it comes to attracting investors for your startup is to negotiate conditions and investments. It is important to show a lot of instinct here. The point here is not to simply accept the cheapest offer because you think that you urgently need the investor. You should be particularly careful when selling company shares. It is often underestimated how much influence an investor can have with a certain percentage of the company. Here you should definitely have a professional check how many shares you can and should give up in the company.

You should also be careful with the term of loans. If you choose a long loan term, the monthly financial burden will be low, but higher interest will have to be paid in the end. If you expect higher sales and want to get out of the loan quickly, a shorter term with lower interest payments is worthwhile. It is therefore best to choose a lender with whom the terms can be individually adapted to your needs.

A cap table, which can be used during negotiations, can also be important for young entrepreneurs. If you want to know more about it, have a look at the following article.