Getting Investors to Notice Your Project
The financial recession of 2008 was the worst global financial crisis since the Great Depression of 1929. Housing prices plummeted 31.8%, and unemployment rates remained above 9% in the 2 years after the recession ended.
Prior to the recession, banks had allowed people to take out loans for 100% or more of the value of their houses. Banks then engaged in trading mortgage-backed securities to investors, using home loans as collateral. But there was a small problem – too many homeowners did not have the credit ability to service these loans. These would not just hit the housing sector, however. Hedge funds, mutual funds, corporate assets, and more financial institutions all traded in the securities – and things fell apart once banks realized they would have to swallow the losses.
These days, traditional investors in start-ups, such as business angels and venture capitalists, have moved their investment activity upstream and focus more frequently on later-stage investments. This is likely due to the lower element of risk involved.
Small Profit Margins
Standing out from the proverbial “slush pile” is no mean feat, and for good reason. Investors like VCs generally don’t make money. According to TechCrunch, a VC fund needs a 3x return to be considered a good, profitable investment. The numbers do not look good – just 5% of VC funds are actually making good money. And the way to get a viable return is through finding the dream “unicorn”; a bunch of average performing corporations won’t get these VCs the targets they’re looking for.
VC funds need to see viable markets, a capable team, and an understanding of a startup’s business strategy. The screening process, or “due diligence” is part and parcel of the process, but the financial recession has served as a reminder of the small profit margins they tread in.
This blog post suggests that 70% of the startups a “leading incubator and seed fund” picks up are from referrals and contacts; about 30% were unsolicited pitches through formal channels. However, it remains the case that no verified study has confirmed that personal relations actually played a part in getting funded.
It never hurts to deepen your network connections and build your personal profile, though. It is inherently still in human nature to approach someone you know with more warmth that a passerby on the streets. Every little bit you put in will pay off some day.
So… How do I get noticed?
Focus on fundamentals
At the core of every business is a healthy business model. At HZ Capital, we value fundamentals above all means. “Disruptive technology” is indeed powerful but means nothing if there’s no underlying strategy. Anything multiplied by zero gives you zero; if technology was truly disruptive, it’s not a stretch for us to say that we would likely all be using Bitcoin today.
Uber saw success for its ability to simplify the taxi-hailing process, and even track the location of the ride using GPS. At its core was the smart use of technology to disrupt the current business models of taxis and its flaws – just look at all the protests as taxi drivers in cities worldwide responded to Uber’s expansion.
We’re in the process of designing a workshop with these fundamentals at its core; leave us a message if you would like to find out more about them!
Crowdfunding has emerged as a way to bypass the usual hurdles of the traditional fundraising model. This ease has propelled the global crowdfunding market into a USD 6.92 billion industry, according to Statista. Under the crowdfunding model, several “backers” receive incentives like a completed end product once it succeeds and achieves mainstream production. This most common kind is known as reward crowdfunding. Frequently, other incentives are thrown in the more a person contributes. This model does not include financial returns, which are usually disallowed on reward crowdfunding platforms like Kickstarter and Indiegogo.
In recent years new crowdfunding models like debt and equity have emerged. In debt crowdfunding, a project borrows money from several individuals, with a legally binding commitment to repay the loan at a certain interest rate over time. Equity crowdfunding platforms allow backers to gain actual ownership from the venture they are funding; this is absent in debt and reward crowdfunding.
Crowdfunding – the way to go?
With crowdfunding, one can validate the viability of their idea, even if the campaign does not succeed. This opens the doors to the potential of marketing and research at much lowered costs; a typical market research campaign for a product launch can run into tens of thousands.
Crowdfunding can also be seen as a marketing shortcut overall. The investor in the case of crowdfunding is the very customer itself, which simplifies the marketing process. There is lesser need for additional advertising to be done compared to if the venture was funded traditionally. Plus, this model has the added benefit of building a community around the venture, a very important aspect in today’s environment where the continued growth of a venture is more important than revenue.
Traditional means are far from dead, however. US venture capital investment reached $130.9 billion in 2018. Several crowdfunding projects also later saw a further boost from institutional investors, who saw great potential for growth based on the community and their reception.
Crowdfunding is an interesting alternative to traditional fundraising methods, but perhaps it’s still quite a stretch to say that it will replace the fundraising methods today.
At its core, the solution is to truly understand the customer’s needs instead of just focusing on technology, in order to be able to push something in the first place.