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The Biggest Challenge for an Entrepreneur Starting a Business is Financial Support
One of the biggest challenges for an entrepreneur starting a business is securing the financial support necessary for the idea to take off. Most resort to bank loans, but often this makes the venture unfeasible due to high interest rates. An alternative is to seek investors for your project. find investors
The question, then, is: how to attract investors? It’s certainly not an easy task, but with good planning, it is possible. With that in mind, here’s a step-by-step guide on how to attract investors for your business.
KNOW THE TYPES OF INVESTORS
The first step is understanding the different types of investors. These include:
Incubators: The primary investment opportunity for startups still in their infancy. As the name suggests, incubators are a way to nurture ideas, usually through universities and educational institutions. The purpose of incubators is to provide technical support and training to help ideas transform and grow, making space in the market.
Crowdfunding: Another popular option for entrepreneurs just starting their business. Crowdfunding is collective funding, where multiple investors can provide financial support, typically with no fixed amount required.
Accelerators: Similar to incubators but focused on companies and startups that have already taken their first steps. Accelerators help these businesses with innovative ideas and high growth potential secure further investment or reach their break-even point. Besides financial investment, they can offer technical training, consulting, and infrastructure to support growth. Investments in accelerators usually range from R$ 50,000 to R$ 350,000, with an average investment period of 6 months, acquiring a stake of 5% to 20% of the company.
Angel Investors: Currently the most sought-after type of investor, angel investors focus primarily on startups at the beginning of their journey. Angel investors are typically successful businesspeople or executives who have accumulated enough resources to allocate a portion of their wealth into new businesses they believe could thrive. Besides financial contributions, they can assist young entrepreneurs with their experience and network, which is why they are known as smart money. Angel investors typically invest between R$ 10,000 and R$ 1,500,000 over a period of 3 to 6 years, acquiring 1% to 10% of the company's equity.
Venture Capital: Venture Capital (VC) is a financing tool for companies and an investment vehicle for institutional and individual investors. VC firms raise capital from investors to create risk funds used to buy stakes in early or late-stage companies, depending on the VC firm's specialization (although some are stage-agnostic). These investments are locked until a liquidity event, such as an acquisition or IPO, when the VC realizes returns on their initial investment. Venture Capitalists seek companies with some market presence and minimal revenue. Early Stage VC usually invests between R$ 1,000,000 and R$ 9,000,000 over 5 to 7 years, acquiring 20% to 30% equity. Later Stage VC usually invests between R$ 7,000,000 and R$ 30,000,000, acquiring 30% to 40% equity.
Private Equity: Private Equity funds are collective investment schemes used for investments in various shares and debt instruments, usually managed by a company or limited liability partnership. Private Equity funds typically have an investment horizon of 5-10 years, with an option for annual extensions. A key feature is that this pooled money is not publicly traded and is not open to all individuals for subscription. Generally, these funds invest amounts over R$ 30,000,000, acquiring over 50% of the company's equity, and the business is typically over 5 years old.
HAVE A GOOD BUSINESS PLAN
Choosing the right investor is useless without a solid business plan. This step is essential to convince potential investors to buy into your idea. The business plan presents the concept as an attractive and profitable venture.
This document should include all relevant information about the business, what has been accomplished, and what still needs to be done. It should include:
Product or service estimates, pricing, and values;
Target audience;
Fixed and variable costs;
Marketing and communication planning;
Analysis of strengths, weaknesses, opportunities, threats, and competitors;
Mission, vision, and values;
Product or service differentiation.
The business plan doesn’t have a fixed structure, so the more information you can include, the better.
MAKE YOURSELF KNOWN
It’s common to find events, workshops, and symposiums related to your business segment, and with a business plan in hand, these are excellent opportunities to showcase your idea to the market.
Whenever possible, attend these events, network, share experiences, and use these opportunities to promote your business. Networking is crucial for anyone seeking support and investments.
DON’T GIVE UP
Anyone who wants to start a business must be persistent. If an investor turns down your business, don’t give up and stay focused on your goal. Understand that a rejection isn’t the end; it’s a chance to review strategic points and improve them. Take each rejection as an opportunity to refine your idea.
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