From Invention to Product: How to Find Investors
Theoretically, your invention is mature. They have even applied for a patent in connection with it. Do you and your team now lack the financial means to start your own business? Almost all start-ups face this problem sooner or later: In order to turn an invention into money, in most cases, money is needed first. This is where your investor search begins.
The search for a financier is usually not as spectacular as in the television show "The Lions' Cave". However, it is true that your "pitch", the presentation of your idea, must be convincing. Where do you find the right investor? Depending on the situation, these can be people you know, banks, business angels, venture capital companies or even a crowdfunding platform.
Investor search at Family, Friends, and Fools.
You should search your immediate environment first. This money group is called "the three F's" - "Family, Friends, and Fools". Family and friends will give you an advance of trust, already know your plans and would like to help you. There you will find support for the first tests or prototypes. For larger sums, however, it is usually not enough.
Being the inventor of a company also involves a risk. You may find yourself in a situation where you cannot repay the money as quickly as you would like and as your private investor would need it. Then this can put a strain on the relationship. The saying "Friendship ends when it comes to money" is not without reason - so think beforehand about whether you and your investor or your investors can deal with it.
Start-up Loans from the Bank
The next way on the search for investors is usually to the bank. However, inventors and founders without equity usually find it difficult to listen to their concerns. However, there are special loans from KfW-Bank for those who want to set up a business. With the "start-up money" model, you can finance investments of up to 100,000 euros without equity capital. Two other models make higher demands, but they can also be used to borrow larger sums.
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No money, but you will find a helpful infrastructure and good contacts at so-called incubators. These are usually centers subsidized by the region, where inventors and founders can rent rooms flexibly and cheaply and make use of services. In addition, they are supported by know-how. Start-ups that set up within the framework of such networks find useful contacts and help more quickly, also in the search for investors. This increases the chances of success.
Crowd investing: The help of weight
Crowdfunding is a method of finding investors that is becoming increasingly important. You present your pitch on a platform on the Internet and instead of a single investor you find many who contribute smaller amounts. Some models work on a donation basis, others on a loan basis. The most interesting form for companies is that of crowd investing, in which the contributors also participate in the profits of the company. The risk for individual investors remains clear. This model is particularly suitable for ideas that are aimed at end consumers and can be well presented in the media. Many investors are personally interested in success. So you will find ambassadors of the project in them at the same time.
Find Investors: Start-up Financing from the Business Angel
You may find the right investor in a business angel or angel investor. This is a wealthy individual who is willing to invest his or her private capital in a start-up that is still at an early stage. Either time and resources are needed for the development of the invention (pre-seed) or you just want to start production and sales. A business angel not only supports financially but also advises. The start-up company thus gains know-how and contacts that can be very helpful.
This financing is provided either in the form of a loan or in the form of a shareholding, usually in the form of sums of between EUR 50 000 and EUR 200 000. You will find potential business angels on lists and Internet platforms. Before addressing those who seem most promising to you directly, you should research what industry they are in and what they have supported so far.
Find Investors: Venture Capital Companies
Potential investors for larger sums can be found in venture capital companies, also known as venture capital or VC companies. There, professional managers manage funds, i.e. the money of other people's money, which they are supposed to multiply. VC companies invest in young, not yet listed companies and advise them. Start-ups thus not only find investors but also expert support on their way. However, such companies also secure rights of control and participation.
The business model of venture capital companies is to sell the shares at a profit when the company has "made it" - to the company itself, to other investors or on the stock exchange if an IPO has taken place in the meantime. VC companies are therefore dependent on finding promising projects for their investments. Start-ups are often bought up by big players in the industry. Of course, the investor also benefits from this.
High returns in the case of success must compensate for the fact that there are always start-ups that fail, and the invested sum is lost. Today you can find an overview of suitable VC companies in databases and online platforms. With some of them, you can also register as a start-up and thus attract the attention of investors.
Convincing Investors: The Pitch
Whether bank, business angel or VC: Why should these people give you money? The answer to this question is your pitch. What is your business idea about? What problem does your invention solve for potential customers? Why should people buy your product? What marketing strategy are you planning? And of course: How much money do you need and what can the investor expect for it? In the Pitch Deck, your presentation slides, you show the most important information and figures. Limit yourself to the most important thing. Speak for a maximum of five minutes, possibly even less.
Finding and Testing Arguments
If you have been working on the invention for a long time and then on the business idea for a long time, it may be difficult to be so brief. Therefore, put yourself in the investor's shoes who do not know you, but constantly receives inquiries and has little time. He will assume that your project is useless if the benefits cannot be conveyed in a short time. So try to find the right words and test your pitch beforehand against a person from whom you can expect honest feedback. Could you convince them? Would you give yourself the money? Investors are also people - they only have more money at their disposal.
Solid Basis: The Business Plan
You must have done your homework beforehand so that you have convincing figures at hand during pitch preparation and can also answer questions. In a business plan, you compile everything that makes up your founding idea - from the market analysis to the marketing strategy, from the people behind it to the capital requirements and, of course, the expected revenues. It is worth investing time in the preparation of a business plan and possibly also using external help for it. Because this process is also an opportunity for your team to review and optimize the entire idea from a commercial point of view.
Before a potential investor deals with your extensive business plan, he must first find the project interesting. For the first overview, have an executive summary with the most important figures on two to four sheets ready.
A Successful Foundation is Teamwork
The path from an invention to a product with which you can earn an income is difficult at first. Success depends on many factors, not all of which you can influence. It is important to find comrades-in-arms or cooperation partners who complement your competencies. A good inventor is not automatically a good salesman. With a patent, you can ensure that initially only you go with your development on the market. And the right investor will help your idea on its way. Don't let prophecies of doom discourage you: History shows that many inventors first had to listen to judgments disparaging themselves from experts - and then succeeded.