Are you interested in raising capital for your company? Investors often say that "there is plenty of money in the market, just a lack of good ideas to invest." At the same time, a private investor is often not only money for your business, but also a chance to develop it faster. Mainly due to the residual value brought by the new business partner.
In this article you will find useful knowledge and specific tips on how to increase your chances. You will also learn what not to do, when the search for an investor does not make sense and what to be especially careful about. Have a successful reading!
Private investors fall into categories such as:
"3F" is a humorous industry name for friends of an entrepreneur who would be willing to invest in a particular business largely through sympathy and trust towards the originator. These are not professional investors, but people who simply have the right assets and can become potential investors for this reason. Along with so-called bootstrapping (self-funding), this is a popular way of raising financing at the very early stages of business development.
Business angels are wealthy individuals who invest their funds in companies in exchange for the shares they take in them. The category of business angels is very capacious and includes both passive investors who do not get involved in the day-to-day development of a company and active investors who contribute so-called smart money, so in addition to cash itself, for example, contacts to potential customers or other assets that are valuable from the point of view of the company.
Investment funds are professional investors who make their living by investing in companies. This is their main professional occupation. Their job is to find the most promising companies, whose value can be raised from several to hundreds of times over several years. They build up the company's capital in order to sell the shares at a profit over time. Investment funds are divided according to the level of funds invested and the stage of development of the company at which they invest. The earliest investments are characterized by preseed and seed funds. When the company already has customers and revenues, classic VC funds (round A, round B) invest, while in the case of highly developed companies, with a value of at least tens or hundreds of millions of zlotys, investments are mainly handled by private equity funds.
Sometimes a peculiar role of private investor is also played by a larger company operating in the same industry, which, however, instead of buying a minority stake, simply absorbs the company into its larger structure (acquisition / takeover).
The answer to this question should start with an assessment of whether an investor is the best or only option for obtaining financing. If we have already exhausted the possibility of self-financing the project, and there are still not enough customers on the horizon, it is also worth checking out solutions such as loans (especially preferential ones) or grants (see what opportunities there are on the https://dostepnedotacje.pl). In the case of both a loan and a grant, you do not have to give part of your company's shares to a stranger who can additionally gain influence over the fate of your company. This independence from third parties/entities is the main benefit of not using investor support.
Most entrepreneurs or would-be entrepreneurs who approach us are very optimistic about obtaining financing from a private investor. Their notion is that, after all, they have a great business idea, so there should be many people in the world interested in investing. Especially if, in addition (and this is rare at the stage of first contact with us), they already have a professionally executed business plan Or an investor presentation. Well, the practice is different. Private investors are actually a small group of individuals and companies. In addition, each investor has a narrowly defined profile of projects sought. Usually they are companies in a specific industry at a specific stage of development. They have limited capital for investment and "ten times" check a particular investment project.
If your business is a newsstand, hair salon or other traditional business - don't count on getting financing. Preference is given to companies that are already recording revenue, or at least can prove demand (e.g., have conducted credible market research among potential customers or have pre-contracts, test deployments with customers, etc.). In addition, the industry is important. Here, theoretically, there are no restrictions, but there are some sectors that are particularly attractive among investors. These are primarily new technologies, and among them are solutions among others. in the fields of fintech (finance), greentech (ecology), foodtech (nutrition), e-commerce (e-commerce) or medtech (medicine).
If your business is a traditional stationary business (e.g., a factory), do you have no chance to get financing from an investor? You have, but you need to look among other entities - such as companies in your industry or wealthy individuals who have been/are in the same industry.
For simplicity, below you will find a checklist to tick off:
A professional investor analyzes a company from many angles. These are the criteria indicated below, in addition to, among others, competition, innovation or the stage of development of the company (the more advanced - the better).
One of the key elements of evaluation is the business model of our project. First of all, what problem we want to solve and whether it actually exists. And if so - to what extent it is realistically relevant to potential customers. At this point, it is worth presenting arguments that give credence to our claims (e.g., preliminary agreements with clients).
Competence of the management team is often a key element of evaluation. Originators are often not aware of this. An additional "bonus" is given to people who have previously run other businesses successfully, or who are specialists in their narrow field that their role in the company or the industry in which the company is to operate.
Getting an investor is made easier if a company operates or is expected to operate in a prospective market. For today, these are, for example, green energy, fintech, foodtech, environmental protection or e-commerce.
Contrary to appearances, the originator is exposed to certain risks when seeking financing. It is not just a scenario in which he fails to find an investor. Well, in recent years, one can observe the activity of pseudo-investors who encourage entrepreneurs to contact them promising investment on very favorable terms. E.g. taking a minority stake, no influence on the company's activities, investment on the basis of the business plan presented by the originator alone, any business sector, etc. People who have been rotating in the industry for years know that the process does not work that way.
Unfortunately, the budding entrepreneur usually doesn't know this and hopes for quick and relatively easy financing. In practice, entities of this type usually try to scam money at some stage (but never at the beginning!). For example, there are operating costs associated with obtaining financing, or you have to order a business plan from a substituted company (because only it will guarantee "quality"). Of course, the investment never finally happens. Additional damage on the part of the originator is the betrayal of the entire business concept to these people or wasted time.
Scammers often operate through the underhanded intermediaries they work with and look for victims on the Internet, mainly through online forums and social media. If you see an ad like "I will invest X amount, any industry." - exercise caution.
To avoid the situations described above, it is worth paying attention to the following:
The detailed terms of cooperation between an entrepreneur and an investor are always subject to negotiation. For this reason, it is difficult to identify a one-size-fits-all model that is universally applicable.
Typically, investors take a minority stake. It is worthwhile to compose the structure of shares in such a way that there is the possibility of admitting further investors in subsequent rounds of financing. For this purpose, the entrepreneur must maintain a sufficiently large pool of shares. A strategic investor plays a special role. He can, for example, facilitate entry into new markets, or bring a different, greater value than the others.
Even before an investment agreement is concluded, the parties usually sign a so-called term sheet which can be described as a kind of letter of intent.
To safeguard the investor's interest, special clauses are often included in the investment agreement to protect the investor. Examples of such clauses are: the possibility of connecting to the sale of shares by the majority shareholder, priority in satisfying his claims against the company over other shareholders, or the possibility of forcing the majority shareholder to sell his shares under certain circumstances.
In the process of negotiation, it is advisable to use the support of a lawyer. You can find an offer in this regard, for example. herein. Sometimes we receive entrepreneurs who have entered into extremely unfavorable investment agreements in the past. This was the result of being blinded by the vision of raising large funds from a stranger. The practical effects are, for example, that such a person is forbidden to work for the next 10 years for any other company in the industry without the investor's consent. If the company collapses, which happens, the entrepreneur then faces a big problem.
In addition, the investor often makes the payment of subsequent installments subject to certain conditions. Typically, these are sales results that the entrepreneur commits to meet. In this context, terms such as KPI, OKR or milestone often appear. They denote performance indicators (ways of measuring results).
A business angel usually operates in a less formalized manner than venture capital funds. This makes it easier to complete deals more quickly.
A financial investor is not the only way to get funds for business development. Remember also subsidies (check out the current subsidies in our guide at: https://dostepnedotacje.pl) as well as about loans. As is well known, loans and credits must be repaid. However, first of all, you do not then divest yourself of shares in the company. What follows, you retain full control and freedom of action. And secondly, so-called soft loans are often available. They carry a nominal interest rate, plus sometimes you can get a grace period for repayment. This type of solution is worth considering. Even more so when obtaining financing from an investor is not possible.
Each of the ways of obtaining capital has its own advantages and disadvantages. It is worth analyzing them carefully before making a final decision.
Getting investors is not an easy, often lengthy process. It requires not only a good business model of the company itself, but also careful preparation for the talks. Usually, in addition to know-how and experience, specific business contacts are also useful. Therefore, it is advisable to reinforce the support of reliable specialists. Development of a financial model, pitch deck (investor presentation) are just some of the services we provide for entrepreneurs. If you need support in obtaining financing from an investor or are wondering if this is the optimal way of financing for your business, please contact us. We will be happy to answer your questions, and if possible, help you.
