How to find startup investors… one of the most common questions we get asked at SeedLegals. So, here’s the comprehensive guide to finding investors for every stage of your business.
First, let’s define the stage your business is at, in VC industry-speak: Pre-seed, Seed, Series A, Series B.
Parameters will vary depending on your startup’s sector but broadly speaking for an Irish company these are:
- Pre-seed – you’re either pre-idea or pre-product (and therefore pre-revenue)
- Seed – post product, and either on the cusp of revenue or just post revenue (e.g. making £10k a month)
- Series A – post product, (near) making £1m annual recurring revenue (“ARR”)
- Series B – £10m ARR
The good news for any startup is that the funding universe for them has never been so plentiful. There is more money than ever available from institutional investors, startups themselves are helping to democratise investment (e.g. SeedLegals making the legal work simpler and less expensive, crowdfunding platforms making it easier for the public to invest), and thus the universe of angel investors has never been so ripe.
Here we’ll cover the main sources of equity capital for start-ups from:
- Incubators / Accelerators
- Venture Capital funds
Before you consider any of the above to give away equity, don’t forget about grants.
Grants, grants, grants
Ideal for – any start-up
Pros – free money
Cons – time to find and apply
Before you even consider the private route, it’s worth a search for grant options. It’s free money, not a loan – take it. It takes none of your equity. The key issue is knowing where to go and the time needed to spend on grant applications. A Google search will point you in some directions surely but grant funding is not as heavily marketed as a VC fund would be. If you know where to go for grants, great. If not, or you feel you don’t know the options available to you, consider speaking to funding specialists who can help you navigate that landscape. Our partners at Swoop can help you do just that.
If you’re a start-up housed in a university (say in a lab), or your start-up is heavily based on scientific research, there’s a very likely chance that there will be easy grant money out there for you to get (e.g. Enterprise Ireland).
We would also encourage engaging with Enterprise Ireland and discussing potential support which can come in the form of matched investment and their international reach which can help scaling into new markets around the world.
Grants will unlikely fuel you forever, but you should maximise their non-dilutive benefit in the early stages of your business before having to more likely give away equity when you raise from investors.
But let’s say grant funding was never an option for you or you’ve exhausted its capability. What next? Chances are your next course is angel investors or, if you’re a pre-idea, pre-product or maybe even a pre-revenue startup, there is also the option of an incubator / accelerator.
Incubators / Accelerators
Ideal for – pre-seed companies
Pros – non-cash resources, early access to VCs
Cons – expensive, not accessible for all businesses, not accessible all year round
The crossover between ‘incubators’ and ‘accelerators’ for start-ups has become increasingly nebulous over recent years. In essence these organisations provide businesses (or even teams before they’ve even formed an idea for a business) not only with cash investment but also a dedicated amount of resources. The scope of ‘resources’ will vary from firm to firm, from something as minimal as office space to more comprehensive services such as operational advice from mentors for perfecting your business model, business plan, product, tech etc. The overall goal of these services is to help accelerate your business over a defined period of time e.g. an 8 week or 3 month programme.
The caveat is not all of these organisations can provide cash investment so if cash is an absolute must in the short term, an incubator / accelerator might not be the best course of action. The other cons are that many operate their programmes at fixed times during the year so you can’t enrol whenever. The other con is that, relatively speaking, the cost of these programmes is expensive. On joining the programme, rather than pay cash for the incubator/accelerator services, the organisation will take a non-negotiable stake in your business in exchange for cash and/or the services provided by the organisation on the programme.
The pros are if you’re a first-time founder, the resources provided by these programmes can be invaluable to getting your business off the ground. Y-Combinator, arguably the world’s most famous incubator, has been the starting ground for some of Ireland’s most successful startups such as Stripe. Another significant advantage from participating in these programmes is that at the end of them there will be a ‘demo day’ where you will pitch to a plethora of VCs and angels (the most renowned incubators/accelerators such as Elkstone and Atlantic Bridge will give you the widest access), thus giving you the perfect springboard to raise either your next round or build those important VC relationships early on for your fundraising journey.
If this isn’t for you, your next best step is friends and family, although for many this might not be a route to pursue either from a relationship standpoint or the amount of capital needed. So the next best step is angel investors.
Ideal for – any business
Pros – quickest source of capital
Cons – you’ll often need many to fill your round and can be an administrative hassle
Angel investors are individuals who will write (relatively speaking) small tickets into your business (anything from €1k – €100k). They are most likely to be the very first private investors into your business. Why? For a few reasons:
- The average ticket size written by angels or a group of angels is generally too small for funds to consider (e.g. <€100k).
- There is a great culture in Ireland of entrepreneurs paying forward by backing early stage startups.
Despite being the cornerstone of start-up investment in Ireland, angels are, unlike VCs, hard to find. The majority don’t actively market themselves on Twitter for example. There are active syndicates as part of HBAN and others linked to sectoral and regional investment groups. As a founder, fundraising is an extremely time-intensive and administrative process so optimising that process is key to minimise distraction from growing your business. So, some basic rules to get them:
In tandem to you searching for investors, you can make investors find you. So make noise. About to launch your MVP? Just signed a brand name partnership? Shout about it on LinkedIn, Twitter or other communities where investors and startups meet. The more viral your name becomes, the more likely investors will reach out to you. This is a win-win. Not only could you land investors, but this could also give you side-benefits such as new customers or partners (which in turn makes you more attractive to investors).
Analyse your own network.
You’ll be able to do this mentally of course (“Who do I know that has (a) has cash (b) would consider investing in my business?”) but chances are, unless you’re highly connected with the investment world, the number of people will be limited. Don’t bank on pitching to a few angels to get your investment, you should be aiming in the tens at least.
So start with those leads if there are any, they are your warmest in terms of getting a conversation. Warm referrals are the best for angel investors. It’s not because they’re exclusive but you’re far more likely to get a response with a warm introduction. Serial angel investors are likely to receive many pitches a week and angel investing might not be their full-time job, so it’s easy for cold e-mails to get lost. Bug all your friends for intros. You’re a start-up after all, you’re expected to hustle. Who knows, the angel investor you land up speaking to may be impressed by the efforts you took to get there which will say a lot about your investability as a founder.
If you are reaching out to UK investors find out of your business is likely to be eligible for (S)EIS, apply for Advance Assurance ASAP.
This means your UK investor will get significant tax advantages to investing, which de-risks their investment in you significantly (by.30-50% of the cost). If you get this, the wider the pool of angel investors you’ll be able to market to.
I’d recommend doing this either before or as you start approaching angel investors. It can take HMRC a few weeks to approve your application so you want to have it in place asap so you can progress getting any committed investment secured asap (you can get this done on SeedLegals easily).
Don’t know anyone or run out of links? No problem, but the challenge is harder. It’s time to hunt. Some useful resources would be:
- Start-up databases like Crunchbase – search for companies that are in a similar space to you and see who’s invested in them. If there are angels who’ve invested, try to find them on LinkedIn or Twitter to do a direct outreach (or intro if you see you have a connection).
- The proliferation of tech content is also bringing angels to the fore. Follow Silicon Republic, Tech Ireland, Scale Ireland and Intertrade Ireland for events and pitching opportunities.
- If there’s a link here or to other angels you see there, great. See how you can get an intro. If it’s these angels or others, cold outreach is the next step. This is fine but the key here is to make MAXIMUM impact with the first intro.
Some hunting tips.
- Get them interested – be conscious that angels, the most active ones in particular, will get tens and tens (if not hundreds) of decks or invites to speak about investments per week from cold e-mails. A tip a ‘super angel’ (i.e. those who write particularly big tickets, e.g. €50k+) told me that the best way to stand out is to open your message with a one-liner that says something noteworthy about you as an entrepreneur. Maybe you’ve founded a business before or have a notable tech background at one of the big names, or maybe your business is addressing a [x]bn market, has a commercial agreement with a brand name. Get them interested. It won’t work every time of course but it’s better than the formal pleasantries of a ‘let’s connect’ message, because chances are the recipient won’t read beyond the first few lines. Looking at the angel’s LinkedIn, try to assess their style, is their profile quite formal (e.g. like a lawyer or investment banker) or more informal – use that to craft your message with the goal of it standing out.
- Make yourself as visible as possible – if reaching out on LinkedIn cold, make sure your profile is fully up-to-date. A new angel will know nothing about you, and angels more than often are investing in founders as much (if not more) than ideas. Your profile is likely the first thing they’ll be jumping to begin that first step in assessing your credibility to execute your proposal.
- Always, always send a deck – don’t draw out conversation by inviting for a call before sending a deck. 99% won’t want to engage in conversation before seeing the deck. By not sending a deck, you’re increasing the chances of that conversion going nowhere. Don’t be obsessed with confidentiality over your idea. As we say at SeedLegals, ideas are cheap, implementation is what’s expensive.
With all of this, maximum impact is the key because the beauty about getting angels on board is that sometimes it can only take one interested angel to refer the opportunity on to others. All of a sudden you could have your whole round filled, or a substantial commitment to get others on the bandwagon. You are a sole hunter but angels often hunt for deals in packs.
The other main positive about angels is that they can be extremely quick to commit and execute. I’ve met super angels who will commit after one phone call. Given they’re investing their own money, they’re also more incentivised than any investor to help you (be it through network, consulting etc). Be wary of those who ask for compensation unless there’s a real justification for it.
The main disadvantage with angel funding is that their ticket size is relatively small, and so eventually your business’ capital requirements get to a stage where it doesn’t make sense from both an administrative and time cost to corral 50 angels to commit £20k each. It’s much better in that instance to then find a larger source of capital from one source. Previously this was just VC, but crowdfunding has also opened that pool of capital.
Ideal for – consumer focused business
Pros – access to wider pool of capital, increase brand awareness and loyalty
Cons – fees on capital raised, can’t access generally until you have significant private investment committed
Crowdfunders are platforms that allow you to fundraise from the general public. These are an effective way of outsourcing fundraising in that your pitch is marketed to the general public. We have Spark but there are many more options in the UK
There are both private and public crowdfunders. Examples of private ones would be the UK Business Angels Association, which markets your deal to their membership of angels and funds. The public ones are ones that are open to the public such as Seedrs, Crowdcube or Kickstarter.
Which platform you choose depends on what you want and what you’re willing to give away. For consumer product businesses, there are more options in that platforms like Kickstarter allow you to raise money by selling early prototypes of your product to customers, whereas with Crowdcube and Seedrs you’re selling pure equity. Either way you choose, they are good way of (i) marketing your proposition to the wider public and (ii) for those that invest or buy say via Kickstarter, they are a fantastic way of creating and maintaining customer loyalty for the growth of your business.
The main disadvantages of equity crowdfunding are that (i) you need to have a significant amount of private investment committed (generally at least 30% of your total amount) before that platform will market you to their community. The other main drawback is that it is not cheap, the fees on these rounds start at 6% of the equity you raise.
Particularly for non-consumer focused propositions, crowdfunding doesn’t appear to be as popular. If crowdfunding is not your desired route, the typical next avenue would be VC funding.
Pros – large sums to accelerate growth, boost your profile
Cons – time intensive process to raise
Venture Capital is a very wide term. 99% of funds have some form of strategy, either by the sectors they invest in and/or the strategy (i.e. pre-seed, seed, Series A etc.).
Before you even consider going down this route, you need to consider the fundamentals of whether the VC path is right for you. That’s a separate topic which is covered in this article.
If you’re looking for VC funds, a similar strategy exists for engaging with them. As an ex-VC, here are some tips for finding them.
- Decide how much it is you need to raise. Be realistic, if you go too high, chances are you’re pitching to the wrong VCs which is a waste of your time (and theirs).
- Once you’ve decided the amount, look for VCs that could invest in your company based on the sector you’re in and the stage of your business (i.e. pre-seed, seed etc.). VCs are very well advertised, a good few Google searches will give you plenty of information. Once you start following enough people in the start-up industry, chances are you’ll find someone publishing a free database of investors with their investment strategy and focus. Otherwise, Crunchbase also serves as a good source of info here.
- Chances are you’ll need to filter this list extensively. If your business is not eligible for (S)EIS, don’t pitch to any of the (S)EIS funds – they simply won’t be able to invest no matter how great your company is.
- Identify your nearest competitors and find out who the VCs are. Don’t approach these ones. It’s very unlikely that VCs will invest in companies that compete with their portfolio.
- On your target list, you will most likely have 10s of VCs on your list to approach (if you don’t, chances are your business is quite niche which is fine, remember that niche firms will see less deal flow than mainstream VCs). Identify a target number of your ‘hottest leads’ (i.e. the ones you think best match what you’re offering) and make it a number you can realistically handle, say 30 for example. If a VC rejects you along the way (they will, it’s a numbers game), strike that one off and bring one from your ‘back-ups’ on.
- If you can, try to get a warm intro through your network but it’s not essential. Venture Capital in recent years has become a much more open industry and many VCs now either publish their emails on the website or a way for you submit your pitch through their website. By all means do this but again bear in mind VCs probably receive near hundred decks a week. VC funds are lean operations and are time-poor.
- If you’re looking for more creative ways to engage, a positive thing about VC Twitter (and general social media) is that it provides a fantastic opportunity to engage. You can build relationships with VCs now a lot easier, whether it be approaching directly, or engaging with the content they’re writing.
- As with angels, send a deck.
- After your first conversation, keep up the momentum, understand what their decision-making process is and hold them to it. It’s very easy for VCs to fall behind in their processes given the workload that comes in screening tens or hundreds of deals a week.
- And finally, as with angels, make noise. Junior VCs in particular hunt actively for deals. Their careers could be made by finding the next Stripe. They populate social media. Keep making noise and chances are VCs could approach you.
The good thing for founders now is that it is very much a founder’s market. The number of VC funds out there is more than ever, even those organisations who once mocked venture capital (hedge funds for example) are now coming into this space aggressively (see Tiger Capital). As I once heard a very famous VC say, VCs sell the most commoditised asset in the world – cash. The best VCs do well because of smarts, but at the same time a lot of the success comes down to getting access to those founders (and in particular, being the first one to get access). Some VCs are hiring people now with non-conventional backgrounds (e.g. data scientists) to find novel ways to get access early to the best founders. Now the VCs are trying to find ways to get to the best companies, rather than the other way around. This isn’t a reason to be arrogant of course with VCs when you’re pitching (remember their circle is small, word travels), but the right company can now garner a lot of competitive interest.