Dear Professor Investor, When should I seek external funding and how can I find an external investor?
Amy from the Bay Area
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Thanks Amy, great question.
There are some angel investors out there who may wish to invest in your business, depending on how much traction you have, but most investors will want to see a proof-of-concept and some initial traction.
Investors fund the future growth of your startup, not the work to date. This work will, however, demonstrate the strength of your team, your ability to execute and the value of the opportunity.
When looking for external financing, it's import to know that it requires a great deal more work to sell an innovation than to physically create one. The primary risk investors need to overcome is not the question of whether an innovation can be built, but whether the innovation can generate revenue. If you have sales traction you are more likely to alleviate this concern and attract financing.
The best time to seek out your first external investors is often when you are established and have a minimum viable product, or at least something tangible to show investors the value of your idea. Investors also want to see some early traction in the market, so sales or pre-sales will highlight the fact that people want your product and there is a need for it.
When it is time to seek out investors, do your research first. Each investor will focus on different opportunities that suit their interests. For example: If you run a food company, it is highly unlikely an investor who only invests in tech will be interested in your business. Google the investor, research who they have invested in and what they look for, build a relationship, and then pitch your company to them once you have the proof that your idea has been validated.
Hope that helps Amy!
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