How to Gain Funding for Startup: Best Practices to Attract Investors

July 29, 2023, 09:46 AM
by Shahriar Rabab

UNB News
Publish- July 29, 2023, 09:46 AM
Shahriar Rabab
Update- July 29, 2023, 10:00 AM

How to Gain Funding for Startup: Best Practices to Attract Investors

Representational Image: Freepik

Startups are picking up pace across the globe. According to Statista, the number of early-stage venture funds for startups is growing year on year after a dip during the Covid-19 Pandemic peak stage. While a success rate of 10% is projected for all startups in 2023, there is still a silver lining in the form of increased funding. But the key challenge is to secure funding for the startup venture. Let’s explore the different factors that aid in attracting investors for startups.

13 Ways to Attract Investors for Startups

Strong Value Proposition

The main idea behind a startup is to create a solution for an existing problem. A track record of successful startups shows that they took an existing problem and created a solution for it. Then the solution was channelled as a product through the startups.

At the core of this process is a strong value proposition. Successful startups were able to secure early funds from investors because of the strong value of their product or service. Investors look for value in a project. As long as one can show the value and prospects, securing funds becomes much easier.

Detailed Business Plan

Startups aren’t just about ideas. Sure enough, it starts with an idea, but implementing the idea requires a strong business plan. There are a lot of factors in a market that a startup needs to consider before scaling up its product or services. Factors like target market, competitive analysis, marketing strategy, financial projections, and growth plans should be at the centre of a solid business plan. Sharing a strong vision for the startup will help convince the investors to understand the return on investment. And that in turn will help attract investors.

Traction Generation and Milestones

For an investor, numbers are the ultimate deciding factor. An investor will only invest where strong numbers support the claims of the startup. It can include factors like user adoption, revenue generation, or partnerships with key players in the industry.

Try to build up a rapport with incubators and accelerators before approaching potential high-value investors. The more positive the numbers are, the better the chances of attracting investors.

Having a Strong and Experienced Team

Another key factor that drives investment decisions is the market understanding and experience of the team members. Investors often look for people with a proven track record of managing and executing similar products or services in the market. Sometimes, the lack of early milestones like a marketable product, grants, and incubation can be offset by a strong and motivated team that shares the vision of marketing and scaling a startup.

Networking and Referrals

Beyond experience and numbers, a good way to attract potential investors is through networking and referrals. Networking and referrals help build a personal connection with the investors. A positive word-of-mouth impression or a recommendation from a trusted source helps to highlight and convince investors about the potentiality of a startup. The best way to network and gain referrals is by attending industry events, networking meetups, and startup conferences.

Representational Image: Freepik

Pitch Competitions

Venture capital firms and investors often organise pitch competitions and demo days. These are events where a potential startup can highlight their venture or even showcase a demo of how their product works.

Pitch competitions are all about convincing the host of investors to attend the event. Be crisp and precise on the pitch, and as always, put a strong emphasis on value propositions to easily attract investors.

Look for Early-Stage Support

Many startups make the mistake of going for high-profile investors or venture capital at the early stage. Rather than going for potential investors initially, startups should focus on incubators, accelerators, or government grants that can help them gain recognition and credibility. It can also help to build a marketable product that can be easily showcased to investors at a later stage. Some investors even specifically invest in the later stages. So it's better to develop a product or service with early-stage support and then make a move for large-scale funding.

Emphasise on Scalability

Most investors aim for scalability, which is the rapid growth of the startup they are investing in. The more the startup grows, the higher the return on investment (ROI) for the investors. As a result, startups should try to achieve a balance between sustained operations in terms of fund management and future growth opportunities. It is important to show potential investors that they can gain a lot from their investment once the startup takes off, from the early stages to the mass expansion of the business.

Focus on Market Research

Scalability is important for a startup, but that too needs to be sustained. An unrealistic scaling plan will eventually deter potential investors. So what’s the solution? Focus on market research. Understand market dimensions like competitors, trends, niches, and TG. Research everything that relates to the market and the startup's offering. Based on that, quote a realistic, scalable plan and cost. That way, it will be possible to generate trust with potential investors.

Target Market-Specific Investors

There are two things to understand before approaching a potential investor: one is the market in which the startup is operating, and the other is the market expertise of the potential investor in the relevant market.

For example, if a logistics startup approaches an investor who specialises in the finance market, there’s a high chance that the investor won’t follow through. Make sure to approach someone who understands the operable market. That way, it will be possible to gain investment as well as market insight from the investor.

Representational Image: Freepik

Patents and IP

If the startup in question holds a patent or Intellectual Property, it should be properly highlighted to potential investors. Patents and IPs hold a strong ROI proposition based on product demand and marketing opportunities.

For example, consider the case of the British startup Excivion. The company recently filed for a patent regarding its flavivirus vaccine. After a successful trial, the company will be able to market the vaccine as its exclusive medication globally. Any organisation or biopharma that would want to market the vaccine will require prior agreement and permission from Excivion.

Investors often invest heavily in IP-based startups simply because of the potential monopoly they could create in the future.

Clear Financial Management

A potential investor would be interested in the finances of any startup. As a result, it is important to have a transparent financial record. Many startups underreport or overestimate the valuation of their venture. These practices can easily deter potential investors.

A clear financial statement would help convey the actual reality of the venture. And in practice, honesty goes a long way towards establishing potential investment opportunities.

Testimonials and Case Studies

Try to focus on highlighting the changes brought on by the startup in its target market. Share positive testimonials from the customers with potential investors. Make provisions for case studies that quantify the impact of the startup in its market and the overall positive implications. These will go a long way towards convincing a potential investor to invest.

Final Words

The startup boom is taking the world by storm. An astounding 305 million startups are created each year. The industry has a very high failure rate, and most of these startups may fail in the short run. But some will go on to become unicorns—billion-dollar startups.

The success story behind these ventures is more or less the same: a strong investment portfolio at every stage of the journey. Make sure to adhere to the best practices and follow the above to attract investors and ensure funds for a great idea.