Once your business has the proof points to make it a success, an injection of capital may be required to help it scale. At this early stage, it's much more common to get it from high net worth individuals who have made money as entrepreneurs (angel investors) who are willing to take more of a risk. They offset this risk with the belief that they can make a difference using their experience.
Alternatively you can apply to modern seed funds like Seedcamp,
Hackfwd, Ycombinator and 500startups. They use an ecosystem of
experienced entrepreneurs to mentor their investees.
Why would you take angel investment or seed fund over a bank loan or a VC fund? Because real entrepreneurial experience is invaluable. If you're growing a tech business, ideally find an entrepreneur who understands this sector. In the USA, a strong culture of entrepreneurialism has meant that many people who have built and sold tech businesses have re-invested in other young companies. This ecosystem is not as mature in Europe but is definitely improving.
I saw this aptly illustrated by micro VC Dave McClure, founding partner of 500startups.com, who is now a an investor in Moonfruit, at the Dublin Founders Summit last year which included the founders of Twitter, Skype, and YouTube. Dave asked the European investors and entrepreneurs in the audience to raise their hands if they had bought an expensive car. He then asked them to keep their hands up if they'd invested money into a start-up or seed fund. Out of 25+ hands only three stayed up.
12 months on there are several new seed funds in Europe including Passion Capital and Springboard. Things will continue to improve as more European entrepreneurs exit. Pick an angel in the UK with experience in tech and other sectors relevant to you. Choosing the right one is vital.
So how do you identify the right investor? And how can you
persuade them to work with you?
One of the best places to start is to look at other companies that you consider to be related to yours, and find out who their investors are. You're more likely to secure capital from someone who understands your market, and they are more likely to be valuable to you.
To then get your business in front of your chosen angel, you need to be very well prepared and also willing to go that extra mile. Angels are often incredibly time pressed and so it can be difficult to get a meeting with them. If you know someone in common, ask them for an introduction as they are much more likely to take a meeting through a recommendation. You may have to really go out of your way to meet them. I know of one start-up that flew from London and gate crashed the Dublin Summit for a ten minute meeting with an angel.
It's a fine line between perseverance and stalking someone, if negotiated well it'll be worth the effort to get the right combination of capital and experience into your company.