- Magdalena Reith
Finding investors: DIY or with an advisor?
Updated: Sep 1, 2022
Financing your company is one of the key tasks facing you as a young entrepreneur or startup founder. Your own savings are not always enough for this, so financing from third parties is often essential. Whether you are looking to increase your own capital by finding new partners or seek outside financing from external investors, one thing is essential: you need an informative financial plan and a pitch deck based on it to show your investors that you know what is important and how you will use the financial injection profitably.
In principle, you have two possible paths you can take:
You take over the search for suitable investors on your own.
You can bring in a professional consultant for business financing to help you.
Both the DIY approach and working with a professional advisor have their advantages, but of course, there are also some critical factors that need to be taken into account.
For information on the other important investor topics, simply click on the following links:
Should you search for investors yourself or do you need an advisor?
If you set out on your own to find suitable and willing investors, it is essential that you convince with a professional and self-confident appearance. Your documents must be well-founded, and you must clearly prove yourself to be an expert and specialist in your field. In addition to your technical expertise, you must also have a certain amount of business and financial know-how. This is a point that is often neglected. You are passionate about your business and have the best ideas on how to make your business idea flourish, but the entrepreneurial factors fall by the wayside. But, when you're creating a business or financial plan, you can't avoid dealing with the numbers and statistics.
While this can be challenging, it's also a great way to move your business idea from the vision stage to a successful venture.
After all, financial planning, revenue trends, and profit projections are as much a part of being an entrepreneur as the business idea, marketing, and sales. By taking care of the financial aspects and not outsourcing them, you ensure that you maintain a full overview of your business.
However, this process costs you a relatively large amount of time and, ultimately, money. One thing is clear: every hour you spend thinking about and working out the financial plan, researching, and contacting potential investors, cannot be invested in your core business. Calculate roughly how many hours you need for the preparation and multiply this by your hourly wage. In this way, you will see in black and white how much your solo effort will cost you in comparison with a professional consultation.
Another factor to consider is the difficulty of presenting yourself and your business idea objectively, favorably, and professionally. Even though as a founder or young entrepreneur you are completely absorbed in the creative process, many find it difficult to present the vision of their own company so convincingly that investors jump at it. An external consultant finds it easier to do this. Not only does the distance to the business idea have an advantage, but the professionalism and experience do also. And - another important point - an external consultant does not take critical feedback personally, and can deal with it objectively. Something that many founders and entrepreneurs understandably find very difficult.
As you can see, there are many advantages to looking for investors yourself, but you also face some challenges. We have summarized the most important advantages and disadvantages here. Please note that this is only a rough overview. The actual positives and negatives, as well as their weighting, always depend on your idea, level of knowledge, and motivation.
What are the advantages and disadvantages of looking for investors yourself?:
➕ You may have a lower financial outlay, depending on your starting point and knowledge.
➖ It is more difficult to view your business idea with distance and objectivity, the view from the outside is missing.
➖ You have to manage without expert feedback or input.
➖ Depending on your experience and knowledge level, the process can be very time-consuming.
Searching for investors with a consultant
If you decide to make use of the professional support of a consultant, in most cases this has several advantages over going it alone. First and foremost, there is the expertise of the consultant. Just as you are the expert in your field, professional financing advice is on top when it comes to raising capital. So in this case, you can benefit from the extensive experience of a consultant just as your customers and clients benefit from your extensive experience.
An outside perspective
Another advantage is that an external eye sees more than your internal one - keyword: operational blindness. You know your company inside out, are familiar with the smallest detail, and have the full picture. That's how it should be, and that's a good thing. However, this can also lead to neglecting the perspective from the outside, which is extremely important when it comes to attracting investors. It is exactly this external, objective eye of the consultant that brings more transparency to the financing plan or pitch deck. As an owner or proprietor, it is usually difficult for us to take a critical look at our company; sales targets and forecasts are often only vaguely defined, simply because the experience and knowledge behind them are lacking. This is why you profit massively from an objective and independent view from the outside. As a rule, potential investors are more likely to be impressed by objective figures than they are by subjective visions, however good they may be.
Leverage existing networks to save time and energy
A well-established consulting agency also has an extensive network of interested parties and potential financiers. Often, these are people or organizations that would be difficult or impossible to approach on your own. A consultant can not only help you establish direct contact but, depending on the agreement, can also be present during the negotiations. This is especially helpful if you find it difficult to sell your own performance profitably, which many do.
The disadvantages of working with a consultant to find investors
There are some disadvantages, however, but you can cushion them with the appropriate strategy. One is the selection of the right consultant. This is not only about professional qualifications, but also about personal fit. It is by no means necessary that you become best friends, but a common basis should and must exist. After all, you will be spending a lot of time together in the coming weeks and months, and nothing less than your company is at stake. If you get along well, this will make working together much easier.
Another factor that also prevents many from working with a financing consultant is the expense. A good consultant or an experienced financing expert does not work for free, especially since the preparations, financing negotiations and follow-up take a lot of time. On the other hand, the expert's know-how can make a significant contribution to the success of your financing application, so it's important to weigh up carefully whether you are prepared to take on this financial expense. And as already mentioned, it is also important to take into account the time you spend on the preparation.
After all, especially as a startup entrepreneur or founder, your time is precious and you can ill afford to spend countless hours working for free (especially since you're most likely putting a lot of time into your business anyway). When it comes to expenses, you can expect 3% to 6% in retainer costs from the funding amount. This may sound like a lot, but most of the time you'll be better off with an advisor because your prospects of getting really fat financing will increase by a lot. You’ll have a much bigger pie to share from!
How does the search for an investor work?
When you search for investors together with a consultant, this usually takes place in several phases. From the first meeting to the actual negotiations and the closing of the deal, you can expect several months, but this time also includes preparing the documents you need for potential investors.
Before you sign a contract, it is best to find out exactly what is included and taken over by the consulting firm, and which tasks you are responsible for. As an example, here is the typical investor search process for you…
Initial meeting: This serves to clarify basic questions and to take stock of what you want to achieve with the funding.
Preparation of documents: Once the general conditions have been clarified, the documents for potential investors are prepared. Depending on the approach and the preferences of the potential investors, this can be a one-pager, a teaser, a read deck, or a pitch deck. Your business idea is naturally the focus, but the market situation, competitors, and customers are also relevant for investors.
Analysis of capital requirements: The next step is to clarify your capital needs and what options are available to meet them. Basically, the type of financing depends on the business; in addition to debt financing, this can also be funding or subsidies, for example. The consultant or financing expert knows all about this.
Market sounding and pitch-prep: Once the documents are ready, the potential that a financing consulting firm offers has become apparent once again. Within the existing network, the appropriate capital providers or investors are approached and the desired documents are sent to the right contacts. If desired, you can prepare yourself optimally for your big appearance in front of investors within the framework of pitch coaching.
Support and closing: In the final phase, the consultant accompanies you to your appointments and meetings, actively participates in the contract negotiations, goes through the due diligence process with you, and takes over the closing. Your advantage? With the consultant, you have a strong asset at hand, who is practiced in such negotiations and faces investors and financiers with the necessary expertise. These negotiations are tough and not unlike the fierce haggling practices in a bazaar.
The support of a consultant brings you a lot of advantages that you do without in the DIY process:
What are the benefits and challenges of looking for an investor with a consultant?:
➕ A professional takes a lot of the work off your hands and you benefit from expertise in working through the business side of your business idea.
➖ It can be challenging to find the right consultant.
➕ The view from the outside provides you with important feedback.
➖ You will incur higher costs, as good financial advice also costs a lot.
➕The financing expert evaluates your idea, including the capital requirements.
➕ An established consultant usually has a network of potential financiers.
➕ Your time expenditure is kept within manageable limits.
DIY investor search or with an advisor - the decision is yours.
Both the search for investors on your own and with the support of an advisor or financing expert have advantages and disadvantages. The decisive factor is first and foremost how much knowledge and experience you have in this area. Of course, a certain financial outlay is associated with an expert. But, as an independent entrepreneur or founder, you must not lose sight of your own time, because this also costs you, if not directly in monetary units, then nevertheless time away from your core business. If you calculate the time you need for preparation and negotiations, you will quickly realize whether working with an external consultant is worthwhile or not.
It is important that you also include factors such as experience, expertise and the existing network in this calculation. Not only in the long term but also in the short term, the supposedly higher expense of a professional financing consultancy can definitely pay off. With most potential investors, you have exactly one chance; if you screw it up, you're out of the race. Therefore, professionalism is a top priority!
Regardless of whether you go looking for investors yourself or rely on the support of an expert, something you absolutely need is professionally prepared documents with which you approach potential financiers. We can help you with your pitch deck, as well as with a one-pager, teaser, or other business presentation. Since we know that every business is as unique as the founder behind it, we only give customized presentations that we create according to your individual requirements. Curious? Contact us now and let us present your business idea as unique as you are!
For information on the other important investor topics, simply click on the following links: