Equity funding is when you sell a portion of your company to investors in exchange for capital. This is the most common type of funding for startups, as it doesn't require you to repay the money (debt) but you have to give up a portion of your Company and potentially control.
Why does it matter which type of investor you select? Your investor can be your ally but there are instances where things don't go as planned, trust can be broken and it can turn to a nightmare. Before engaging with an investor, It is key to understand his/her risk appetite, the type of return expectation, reporting requirements and investment horizon/exit strategy they require.
There is no one-size-fits-all solution when it comes to early stage funding. It's important to understand your options and your needs before making any decisions.
Here are a few tips on how to go about this:
1. Do your research
Before approaching any investors, it's important to do your research and have a good understanding of their investment criteria and preferences. This will help you determine whether they are a good fit for your business and increase the chances of securing funding.
2. Utilize your network / your advisor or mentor network
Networks are valuable resource when it comes to finding potential investors. Talk to your friends, family, and colleagues and more importantly get to know your mentors, advisors and Board members' networks, to see if they can refer you to interested investors.
3. Attend events and pitch competitions
There are events and pitch competitions specifically for startups seeking funding. These can be good opportunities to meet potential investors and get your business in front of them.
4. Hire a professional
If you're struggling to identify potential investors or don't have the time to do the necessary research, you may want to consider hiring a professional fundraising consultant.
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