Development of any business requires a considerable financial investment, opportunities for which the owners don’t always have. The solution to this problem is attracting people interested in financing a promising and potentially profitable business. Let’s find out how to attract investors and what you need to do to make them want to invest in the project.
Who Needs It
Usually young companies and startups, which have interesting ideas but no money to realize them, are in search of additional funds. If a classic business is usually built on their own or borrowed money, founders of technological startups, the most potentially promising ones, like a platform offering the most innovative blackjack en ligne games prefer not to take risks with loans, and look for people ready to send money to develop the project.
Besides money, you can get valuable information – for example, useful contacts of people who can help with development. However, investments are needed not only by the creators of projects but also by those who are prepared to invest money, otherwise attracting a private investor to a startup would be unrealistic. The main benefits he receives are:
- Additional profits. The purchasing power of money that does not work decreases due to inflation. Investing in a promising development is a way to save finances and make additional profit.
- Passive income. Investing doesn’t require the entrepreneur to be active, which is carried out by the creators of the project.
Types of Investments
Real
Real investments are made directly in the business, in the enterprise. They can be aimed at creating new workshops, restructuring and modernization of production, development of resources, purchase of equipment.
In other words, such investments imply investment in the real sector of the economy. The object can be production, a service enterprise, the creation of both tangible and intangible values (for example, new software or an artistic work).
One of the main features of this group is the large size of the investment. While the purchase of securities implies that they can be bought for small sums, investments in real business are very large. They come either from wealthy individuals or large companies.
Financial
Financial investments refer to the purchase of assets and securities. Some of their features:
- Carried out by individuals and legal entities, non-state companies, and foreign investors.
- They can be direct or portfolio investments. The first involves a contribution of funds to the share capital in exchange for certain rights, the second is carried out through the purchase of securities in the stock markets.
- Short-term financial investments involve investments for one year (for example, the purchase of bills of exchange). Long-term investments have no definite term (e.g., the purchase of a share in the share capital) or their term exceeds one year.
Speculative
Speculative investments are defined as the purchase for subsequent sale at a higher price. The objects of purchase are, for example, securities, precious metals, currencies. In this case, the investor differs from the speculator-trader, trading on the financial markets, on the following parameters:
- Objectives. The speculator chooses among all assets those whose value will increase in the short term and can be sold. The investor, on the other hand, prefers assets that will generate income over a long period of time without being sold – for example, in the form of dividends.
- Selection Criteria. The speculator chooses volatile securities which change their value sharply depending on the market situation and other factors. The investor, on the other hand, chooses reliable companies whose securities are stable and react less to external influences.
- Potential income. Sharp drops in the value of assets are fairly rare, so the trader’s income is usually made up of small sums of money, which come in often. The investor’s profit is usually higher, but you have to wait longer.
Venture
Venture capital investments are investments in promising projects. When startups, young entrepreneurs, and emerging industries think about where to attract investors, this is the type of investment they are talking about. They are represented in technological industries, such as software development.
One of the main features of such investments is high risk. According to statistics, in 75% of cases investments do not pay back in full, and about 40% of ventures end up with bankruptcy of their creators and loss of all the money invested. However, if the company does “shoot out”, the return can amount to thousands of percent. Other characteristics of venture capital investment:
- Capital can come from venture capital funds as well as from individuals.
- Money is invested in a young company until it grows to a sufficient size.
- They are not legally regulated, and they assume all the risks of investing.
- By investing, entrepreneurs receive a share in the company, and with it the right to a share of future profits.
- The venture investor is often personally involved in the startup, both as a member of the team and as an experienced consultant.
Basic Advice
Why attract investors? The answer to this question is obvious: For start-up businesses, which are denied unsecured loans by banks, this is the only way to find financing for projects. A minimum list of what young companies need:
- Having a unique product that a potential investor might find promising.
- An established team with qualified specialists in all key positions.
- Ideally, the product should be in demand, for which sales should be launched at least at the initial level.
- Understanding of the key advantages of the product, excellent knowledge of the market and competitive environment.
- “Roadmap”, that is, a precise implementation plan. Its creators should clearly understand where and where they are going, what resources they need to achieve their goals.
Finding the answer on how to attract investors to start a business usually starts with your inner circle, friends, and acquaintances. More serious and reliable options are:
- Business angels, people who are willing to fund a project in its earliest stages for a stake in the company.
- Business incubators, which offer startups training to learn about the market, management, and marketing. Participation in such programs gives, besides knowledge, useful acquaintances.
- Corporate gas pedals, in which interesting developments are sought by a particular large company to introduce their products into its operations.
- Contests and grants are gratuitous financing of the best projects, which are chosen by commercial or non-profit organizations – the contest founders.
- Crowdfunding sites – online resources where you can post a presentation of a development and raise funds from individuals to finance it.
- Venture capital funds are companies that manage the finances of several individuals or companies on a professional basis. They are well versed in the market and its prospects, so they invest only in those startups that are virtually guaranteed to show growth.
