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Investors in small company?

Recommendations on who to approach re investment in a start up company

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A client with a start up company is looking for investors, can someone recommend how he goes about this?  I have no experience of this so any advice would be appreciated.

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paddle steamer
By DJKL
27th Jul 2021 12:41

What plan, if any, has the client prepared regarding the required investment, its timing, its purpose, management remuneration and either final exit or planned ongoing returns to everyone?

Consider where the money from the targeted investors is to go, does it stay within the business or go direct to existing shareholder(s), this will likely have a significant bearing on investor appetite?

Look at where everyone wants to get out of this and work backwards from this end position.

Be very critical of client assumptions, bringing in investors may for instance compromise the ability to raise further monies in future so great care is needed.

Only once your client really knows what is to be offered and why can investors be targeted.

Re finding investors some of the medium size firms have known investors they can contact but there is no point going anywhere until what is being offered is determined and the plan tested to as best as possible confirm it is sufficient and will work and will be enough (or if not, if further rounds of funding will likely be needed, then address now how these will be dealt with, preemption rights etc of initial investors etc etc)

Planning any project tends to first need an overview and then tends to need drilldown into the smaller detail (at which point having a good team covering finance/tax/legal is essential)

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Replying to DJKL:
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By Bex C
27th Jul 2021 12:58

Hi DJKL
Thank you for taking the time to write your response, it is much appreciated. He is developing a product and had good feedback from people in the industry, however he needs investment to further develop the product so it is ready for marketing. He is looking into bank loans but wondered about private investors as an alternative. This is totally out of my comfort zone - can you recommend any companies that deal with this that I can point him to for further advice?

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Replying to Bex C:
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By Hugo Fair
27th Jul 2021 13:36

Does he not understand the fundamental difference between loans and investors (clue: they're not just alternative sources of funds)?
Think Dragons's Den (the TV prog) ... unless there's virtual proof that there's a profitable business (or a near guaranteed way to get there), outside investors will either not be interested or will want a sizeable (potentially majority) stake.
Conversely a loan will usually involve the founder putting her/himself at risk financially (via guarantees) - but can be a better way of getting to the point where the proof I mentioned is demonstrable (and so investment then becomes a viable option).

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Replying to Bex C:
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By Leywood
27th Jul 2021 14:22

Bex C wrote:

Hi DJKL
Thank you for taking the time to write your response, it is much appreciated. He is developing a product and had good feedback from people in the industry, however he needs investment to further develop the product so it is ready for marketing. He is looking into bank loans but wondered about private investors as an alternative. This is totally out of my comfort zone - can you recommend any companies that deal with this that I can point him to for further advice?

Feedback from industry is often pointless unless they are prepared to put their money where their mouth is.

If the product is likely to be any good you can bet someone is already trying to copy it, unless he protected himself in a couple of ways (probably didnt).

Banks will not provide loans for an idea. What would he use to secure the loans?

Have you or him ever watched Dragon's Den? The Dragon's usual questions come into play here before you even start to look for an investor. What has he put into it investment wise (just for starters)?

If this is out of your comfort zone and you have no contacts, then step away from advising or it will firmly bite you on the behind at some point.

Has ANY of what DJKL suggested been undertaken as you havent commented on that at all.

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Replying to Leywood:
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By Bex C
27th Jul 2021 14:39

Thank you for your reply, the whole purpose of this was to ask for recommendations for a company or specialist that can advise him, and tell him what he needs to do, as I can't! I am not attempting to advise him, trying to point him in the direction of someone who can!

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Replying to Bex C:
Melchett
By thestudyman
27th Jul 2021 14:27

Private investors would not look at this too well if the owner (via themselves or friends/bank loans) is unwilling to put in much capital at the start. Does not scream confidence. Investment could be a good avenue once the other sources of funding is exhausted.

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By paulwakefield1
27th Jul 2021 13:28

Also be careful that you do not stray into regulated "Investment Business" territory.

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By jdm5454
27th Jul 2021 16:03

Funding Circle if they are still going

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Red Leader
By Red Leader
27th Jul 2021 17:11

In practice, the investors end up being drawn from the three "F's": Friends, Family and Fools.

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Replying to Red Leader:
paddle steamer
By DJKL
27th Jul 2021 20:44

You missed the Fourth Horseman, Fantasists.

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By bernard michael
28th Jul 2021 10:35

You could try companies such as Zopa who act on a Peer to Peer basis. Your client should ensure that the product is protected (if it can be) by a patent

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blue
By mg200
28th Jul 2021 17:33

Seed Legals has some info - might be worth a read.
https://seedlegals.com/resources/how-to-find-startup-investors/

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