Primarily, entrepreneurs seek funding sources to launch, expand, or modernize their business. However, investors often also possess advanced experience and can provide valuable advice, assist in strategic planning, or offer access to a network of contacts, which will subsequently prove beneficial for business growth.
Attracting an investor to an operational business
To attract investors, it is crucial to understand that they primarily focus on the return on investment and risks. The business founders, the team, and the product itself are merely risk factors to them.
For example, there are entrepreneurs who are starting their fifth business. They bankrupted their first two, but successfully realized the next two — meaning they have both negative experience and positive outcomes. Collaborating with such owners will signify minimal risks for investors. The same goes for the team—if the company employs experienced individuals who don’t need to be trained from scratch, investors will be much more enthusiastic about investing in the business.
Attracting investors to a startup
About 90% of all startups fail, making it more challenging for budding entrepreneurs to attract funding for their project. Startups are most often funded by venture capital firms, but these firms only finance businesses that have the potential to grow a hundredfold. This is because investors need to at least recoup their invested money if not multiply the profits.
Professional investors will never invest in a startup simply because its owner intends to occupy a new niche in the market. On the contrary, entrepreneurs must understand that it is easiest to receive investments for traditional businesses — car washes, car repairs, cafes, medical centers, restaurants, etc. These have lower risks, making it easier to find financing sources.
