Each year in the United States approximately 1,500 start-ups receive funding from venture capitalists and 50 thousand from business angels. Venture capitalists finance only one startup of the 400, while business angels invested in a start-up of 40. That is at an early stage startup, the ability to obtain financing from business angels 10 times higher than that of a venture capitalist.
Financing of start-ups in the initial stage
How is the financing of start-ups? What factors influence an investor’s decision to invest in one or another business at an early stage of its development?
I often notice that investors are primarily interested in the team qualification, availability of market opportunities for the proposed product / service and the financial component of your project. It should be considered as the preparation of the presentation as well as in developing a business plan. The first and main point – it is project management. I am convinced that an investor finances is not so much an idea as a team that can make the idea viable.
Therefore, if while reading the business plan or presentation, investors begin to doubt in the management of the project, it will mean that he will not invest in your idea. Backgrounds, experience, qualifications of the members of your team to be one of the first points that you discuss during the presentation to the investor. If your potential partner decides that a startup management has the necessary qualifications, the chances that it will work with you greatly increase.
The next question is the market opportunity for the realization of your idea or a window of opportunity – window of opportunity. You have to show knowledge of the market – consumers, competitors, suppliers, and explain why your product buyers prefer rather than your competitors’ products. Investors are always attracted by the opportunity to invest in large markets with ambitious teams. In the early stages of communication with investors do not need to talk about the possibility of an early exit from the project or potential options merger / sale to other businesses.
Niche projects without the prospect of a big business rarely find a positive response from venture capitalists. In this case it is better to look for local business angels. With regard to their participation in start-ups, it is usually venture capitalists want to have 20-25% in your business, and if you invest a few companies, from 15%. If it is sown, the proportion may be reduced, and below 10%.