How to Obtain Funding for Your Business
We receive inquiries from many promising startup founders from Eastern Europe, but most of them know practically nothing about how to secure funding for their businesses. Some terms are familiar to everyone—investor, investment company, business angel. But what do these really mean, how can they be found, and how can one work with them? Is there any alternative?
The problem is that in many countries, there is almost no culture of investing. Therefore, even truly talented and ambitious technology entrepreneurs often don’t know what to do after starting their business. Let's try to figure out what prospects exist for novice businessmen and what their chances are of obtaining financial support, especially when it comes to investing in startups in Kazakhstan, Ukraine, Belarus, and Kazakhstan.
The challenging situation for startup financing is due to numerous factors: an unfavorable economic environment, lack of investor protection mechanisms, and low credit ratings. All of this negatively impacts businesses: entrepreneurs in the post-Soviet space simply lack the means to launch startups, and if they manage to get a business off the ground, it takes even more effort and resources to develop and keep it afloat. Ideally, a startup should pay off and generate profit.
So, where should one look for investors?
There is an excellent solution: one should open a company in the USA and present their project as an American company. The thing is, the chances of receiving financial support from American investors for a non-American firm are virtually zero. However, local startups receive funding from business angels and venture capitalists every year—investors support more than fifteen hundred projects annually.
Why are investors in the USA so generous? It's simple. American angels receive support from the government, which actively promotes collective investment in startups through the internet. Moreover, a law called the Jumpstart Our Business Startups Act was even passed, expanding the number of people eligible to fund various projects for emerging entrepreneurs.
In the USA, it's believed that “technology is the new oil.” When investing in oil companies, the maximum you might get is 20-30% per year. But when investing in technology startups, the profit can be at least ten times greater.
Interesting fact: In the USA, venture capitalists fund only one startup out of 500, while business angels fund one out of 40-50. This means that obtaining funding from angels is ten times easier than from venture investors.
How to Secure Investments?
Of course, to attract an investor, one must consider a multitude of factors that determine how seriously your project will be taken. Typically, experienced entrepreneurs focus on the following questions:
How qualified is the team? Competent management ensures that the project does not fall apart in the early months of operation. An investor always looks at the team first, as only they can determine whether the idea can be brought to life. Mutually beneficial cooperation is what interests your potential partner, so be sure to share your experience, qualifications, and past projects. Additionally, during the presentation, the investor evaluates how passionate the team is about their idea and what they are willing to do to achieve success. Often, angels invest in young startups because they see a commitment not only to making a profit but also to self-actualization.
Will the product/service be in demand in the market? Market opportunity is the second important question. A window of opportunity shows how attractive your project will be to consumers. For this, one needs to conduct market analysis and target audience research, study needs and demand, plan a system for working with suppliers, and assess the overall scale of work. If you can prove that your product is competitive and worthy of attention, consider that you have won over your investor.
The financial aspect of the project. Usually, in the early stages, the startup is funded by its founders. For an investor, this is an additional indicator that you believe in your business and are willing to risk not only your time and intellectual property but also your finances.
When inviting an investor, keep in mind that venture capitalists typically take 20-25% of your business, while if multiple companies act as sponsors, it goes down to 15%. In the case of seed investments, the stakes decrease to 10%.
Considering all the above, we can conclude that the first step to success is to create a competent, clear, and informative business plan that demonstrates all the strengths and prospects of your startup.
Promotion and Advertising
Modern technologies have significantly simplified the process of attracting clients. While ten years ago it was necessary to use all kinds of advertising, calls, various print media, and PR campaigns to find customers, social networks now come to the rescue. Instagram, Facebook, Pinterest, Twitter, YouTube, Tumblr—these are ideal platforms for finding and attracting a target audience. Using hashtags, targeting, contextual advertising, and other marketing techniques allows you to quickly and virtually without costs find precisely those people who will be interested in your offer.
As a result, most companies can operate without sales specialists: the project primarily needs engineers, designers, and marketers.
Services for Finding Investors
As the number of startups in the world increases, corresponding services have emerged to help aspiring entrepreneurs and investors find each other. However, each of these platforms has its own unique features.
- AngelList – This site provides information about business angels and is one of the most popular services. However, the hype surrounding it is somewhat exaggerated. The reality is that the transaction volumes on AngelList are not as high as one might think, since investors do not receive a share of the business in this case. In contrast, online exchanges for private companies, such as sharespost.com or secondmarket.com, have higher volumes and average transaction sizes.
Interestingly, in 2012, AngelList, along with SecondMarket, changed its operational policy to begin working with micro-investments. Now, anyone with a thousand dollars on their card can invest in a project they like, which is beneficial for both new startups and aspiring business angels. The success of this approach is evident as, within just a month, the platform attracted over $12 million in investments.
- Angel.co – Another famous platform where you can find an investor. It has been around for over eight years, and during this time, it has attracted over a billion dollars. Just last year, 8,000 investors registered on the platform, actively investing in startups. And every day, more people are willing to become an "angel" for a new project.
- SmallKnot.com – An interesting project that operates on the principle of "invest in a business in your area" – allowing you to find financial assistance practically at arm's length.
Upon closer inspection, it becomes clear that there are actually many more business angels than worthy startups. For example, in Silicon Valley alone, there are over 300 venture firms and more than a thousand individual "angel" groups. Because of this, small investors often have to navigate through a crowd of competitors, trying to find a promising startup.
Why do angels refuse investments?
Financial investments are always a risk for the investor, as even the most promising project can fail for a variety of reasons. This is why business angels tend to be smart and cautious individuals who are skilled at assessing risks.
There is a story about this. About 20 years ago, a poor Stanford University student met a wealthy restaurateur in Silicon Valley. The student asked the restaurateur for funding for a new project but was turned down; the businessman explained that the student's startup was in a field he didn't understand and could not assess how successful the investment would be, and therefore the associated risks. If the student had proposed a bar project, he would have received unconditional support in everything from financial backing to selecting a location, suppliers, and legal assistance. But investing in a startup that is literally a game of roulette is too great a risk, as both the restaurateur could lose money and the student could end up in debt.
The poor student approached other investors, secured funding, and five years later, that business became a multi-billion-dollar "unicorn." When the restaurateur was asked if he regretted missing out on such a substantial profit opportunity, he replied no. As a wealthy individual, he could afford to refuse requests for funding in projects he did not understand. However, the startups that receive funding are always under the businessman's control: he can keep his finger on the pulse, ensure that the funds are used wisely, and if necessary, he can assist, make additional investments, or even withdraw his investments.
This is a perfectly valid approach. When an angel invests in a startup, they must clearly understand what they will gain from the project, what problems might arise, and how to solve them. After all, in the event of issues, it is the investor who loses money. This explains why it is not advisable to rush to the first investor you find; it is essential first to understand what type of business the potential partner is interested in and whether they are even open to discussing the development of a new direction.
Finding an investor quickly is not always possible, but it is important to keep the project running throughout the search and strive to make it self-sustaining. Our company can help reduce the time it takes to find investments, correctly position the startup on crowdfunding platforms, and work with business angels.
What other types of investors are there?
Investment sources are not limited to two or three well-known options; financial support can be obtained in various ways:
- Business angels
- Venture companies
- Crowdfunding
- Technology incubators and accelerators
- Pre-IPO
- Going public (IPO)
- Small Business Administration in the USA
- Production financing
- Immigration financing schemes
- Private equity
On our website, there is a detailed description of each of these options, not to mention more exotic methods like ICOs and the like. But what we have is already sufficient. Our company specialists will help you understand each of the listed methods and choose the most suitable one. There are specific nuances to be aware of to approach the right investors at each stage.
We operate to achieve maximum results. Analyzing investor platforms, negotiating, and meeting with the most suitable investors are all tasks we take on. Furthermore, our specialists assist in preparing the necessary documentation and navigating bureaucratic formalities to ensure all parties are protected.
Your job is to present the idea in such a way that the investor "follows you." Our job is to find the right investor for you and secure a financial flow to bring the project to life.
