How Startups Can Attract the Right Investors

If you have a great idea for a business, you are likely not alone. Entrepreneurship is currently on the rise. In fact, according to the Kauffman Index of Entrepreneurial Activity, in 2016, an average of 0.31 percent of the adult population—approximately 540,000 people—switched into self-employment each month.

With entrepreneurship rapidly growing across sectors, if you are currently looking for an investor or investors, you are bound to face tough competition. Your idea needs to be compelling, exciting, and viable enough attract buy-in from one or more savvy investors. So, where do you begin to find the right investor for your startup and which types of investors should you simply avoid?

Not All Money Is Worth Accepting

It may sound crazy but not all money is good money. Indeed, some money comes with so many strings attached, you are better off without it. Your investors are part of your team. They need to reflect your values, be passionate about your project and have your back. If they don’t fit with your culture, they probably aren’t a good fit.

Don’t Assume That Venture Capital Is the Only Option

Remember that there are also many ways to find money to get your startup off the ground. Increasingly, if you are an early-stage company, incubators and accelerators–many targeting specific types of startups (e.g., those with at least one female founder or those focused on supporting emerging economies)–are a great alternative. Remember, the more endorsements you have from early-stage investors, the more likely you are to attract established VCs later down the line. 

Increase Your Valuation

Connected to the above point is the need to increase your valuation. Given that only a small fraction of startups ever access venture capital (women-founded companies are even less likely to access venture capital—in 2017, only 2.2% of these companies received funding from VCs), everyone needs a strategy. Common wisdom suggests that money begets money and in the world of startups, this is certainly the case. By increasingly your valuation (notably, you don’t need to be making money yet but it does help if you have an idea, patent, product or just really great team that adds value to your organization), you’re more likely to attract VCs for a simple reason: The higher your valuation, the lower the risk is for investors.

Seek Out Mentors—Sometimes They Are Potential Investors

Mentors are essential. First, mentors often know potential VCs who will be ready and eager to invest in your startup. But don’t assume your mentors are not potential VCs. In some cases, your mentors may, in fact, also be potential investors down the line. On the topic of mentors, however, it is also important to accept the fact that no one mentor–no matter how great they may be–has it all. Different challenges require different mentors, so assemble your team. 

Use Your IQ and EQ

To succeed in the startup world, there is no question that you need to be smart. Successful startups are all about great concepts, business savvy, and increasingly tech expertise. But as much as IQ matters, EQ or emotional intelligence matters. Your people skills will determine your ability to assemble a great team but also your ability to find and secure VCs who are willing to invest in your startup as investors and mentors. 

Finding investors is never easy, but that doesn’t mean it is impossible. The first step is to have a great idea. Then, it is up to you to find a way to attract investors who not only are excited about your concept but also compatible with your organization’s values and culture.