Unlocking Success: Attracting the Right Investors for Your Startup

Founding a successful startup in Switzerland requires much more than just an innovative concept. It necessitates a strategic approach to finding the right investors who can fuel your venture with capital and other valuable forms of support.

In this comprehensive guide, we shed light on the process of searching for investors that align with your company’s vision and match the stage your company is at.

We outline the various investor types and explain when they are appropriate, provide practical advice on where to find them, give tips on how to create a compelling pitch that will convince investors, and discuss the importance of thorough legal negotiations.

With these insights, you’re set to propel your startup forward with the backing of investors who share in your entrepreneurial vision.

Financing a start-up: Do you need investors?

Securing external sources of funding is often seen as an essential step for startups. The injection of fresh capital can accelerate growth, enhance product development, and provide a much-needed safety net in case things don’t go exactly as planned. However, before jumping at the first opportunity to get investors on board, it’s important to carefully assess whether this path aligns with your business model and long-term goals.

Investors may provide the benefit of capital security, but they also come with obligations, expectations and demands. This can have a significant influence on your decision-making and company direction. Therefore, striking the right balance between autonomy and accelerated growth is essential.

What are some ways to finance a startup?

There are various ways to finance your own startup. While seeking out investors is one of the most popular and viable funding sources, it is just one of many alternatives.

It’s important to examine the numerous options available and make an informed decision based on your specific situation and goals. You may also find that a combination of funding sources is best suited to your needs.

Some of the main options include:

1. Bootstrapping

This refers to the self-funding approach. It involves funding the startup through personal finances and revenue generated from the business. It allows founders to maintain complete control over the business but may limit growth potential due to restricted funds.

2. Friends and family

While it could be considered a type of investor-backed funding, this method can be less formal and more forgiving. However, the stakes are personal, and relationships may suffer if the business does not perform as expected.

Still, approaching friends and family continues to often be one of the first funding sources, and may be the only way for startups to acquire capital at a very early stage.

3. Raising equity from investors

Equity financing is the most common approach of startups for raising larger capital sums. Investors such as business angels or venture capitalists provide capital in exchange for an ownership stake in the company.

This method can provide substantial funding and valuable expertise but often means relinquishing some control over the company. There are different types of investors to suit varying needs, which we will explore in detail later.

4. Loans

Some startups may be able to qualify for business loans from banks or financial institutions. These need to be repaid over time with interest but allow founders to retain control and equity in their company.

It can be difficult for startups in their formation phase to qualify for bank loans, as these traditional lenders prefer to not take on undue risk and may therefore only be willing to grant loans to established businesses, or else require significant collateral.

5. State funding

Governments may also provide grants and subsidies to startups to encourage entrepreneurship and innovation, which don’t typically require repayment. State funding in Switzerland provides various financial support options for startups and SMEs, at both cantonal and federal levels.

Some cantons, such as Jura, Ticino, and Valais, offer numerous financing options and extensive support programs, while others have none. It is advisable to inquire with the cantonal economic development offices to find out the offers available in your specific region.  

At the federal level, support includes loan guarantees up to one million francs through cooperative programs, a technology fund for innovative projects reducing greenhouse emissions, Innosuisse grants and coaching for marketable innovations, and specific programs for the hotel industry and self-employment initiatives.

The SECO Start-up Fund supports Swiss investors in developing countries, and the Eurostars program promotes international collaborations in innovation.

6. Alternative funding arrangements

In addition to the conventional forms of financing covered above, there are various types of alternative means of funding and capital procurement. Options like convertible loans, where money lent can convert into equity during future financing rounds, or revenue-based financing, where repayments are tied to the company’s income, offer flexible solutions for startups.

Do you always need investors?

Investors can certainly bring value to startups, primarily in the form of capital, as well as in terms of their expertise and established networks. However, investors are not necessarily the ideal solution for all startups. Depending on the nature of your startup, self-funding or slow organic growth might be preferable.

The best way to determine whether you need to enlist the support of outside investors is by accurately evaluating your startup’s capital requirements whilst considering your own available funds along with other funding sources.

The financial plan section of your business plan should be able to give you a clear idea of the amount of additional capital you require and therefore the extent to which you need to rely on investors.

You should also consider factors such as your business’s capacity for growth, risk tolerance, and the desire for control versus rapid scaling.

Understand your startup’s needs

Before you can begin the search for investors, you need to have a thorough understanding of your startup’s unique needs. Is it mentorship, industry contacts, or direct financial support?

This assessment helps in targeting the right type of investor who can bring more than just money to your venture. You should also form a clear estimate of the amount of equity capital you require which would help form the basis for which investors you decide to target.

The phase of your startup

Startups typically go through several distinct life phases as they evolve from inception to maturity. Understanding the development cycle of your startup is vital to be able to better prepare for your changing needs and plan your financing according to the capital required at each phase. In other words, at each phase of your startup’s development, the capital requirements tend to differ significantly, and so too the sources of funding you utilize and types of investors you are likely to target.

These phases can roughly be broken down into:

1. Seed and formation phase: During this initial stage, startups focus on developing their business idea, conducting market research, and securing initial funding.
2. Early development: Startups begin to execute their business plans, develop products or services, and establish a customer base.
3. Growth and scaling: This phase involves rapid expansion, scaling operations, and possibly entering new markets.
4. Maturity: In this stage, growth stabilizes, operations are optimized, and the focus shifts to sustaining market position while exploring new opportunities for innovation or diversification.

We will explore the different types of investors that are suited to certain phases of a startup’s life in a later section.

Industry considerations

The industry of your startup often dictates the type of investor interest. For example, tech startups may be more likely to attract VCs due to their scalability, whereas local service businesses might be better suited to small business loans or angel investors interested in community impact.

Types of investors

Here you will find a detailed overview of the most important types of investors for start-ups:

Business Angels

Business angels, also known as angel investors, are wealthy private individuals who provide capital for start-ups, usually in exchange for convertible bonds or equity. They are suitable for early-stage start-ups that require small to medium investments of no more than a few hundred thousand Swiss francs. They often take a more personal approach, contributing their own expertise and knowledge to support the company in its start-up phase. Although their main motivation is ultimately to make a profit, they may also decide to invest in certain companies out of personal interest and belief in their vision.

Venture Capitalists (VCs)

Venture capitalists also invest early in companies that they expect to be highly profitable, but usually at a later stage than business angels. They usually provide much higher investment sums, ranging from hundreds of thousands to millions of Swiss francs. This makes them ideal for start-ups that are in the growth phase where larger injections of capital are required. VCs are less personally involved in their investments, often using institutional capital and managing multiple investments simultaneously. They are primarily concerned with high growth potential and a viable exit strategy to generate profits.

Private Equity

Private equity (PE) firms, like venture capitalists, are a type of private investment fund. While venture capitalists typically focus on early growth stage start-ups, private equity firms prefer to acquire significant stakes in more mature companies that are underperforming or have high growth potential. PE firms often aim to improve the financial and operational health of these companies before selling them for a profit, usually through strategies such as cost-cutting, management restructuring or mergers with other companies. In order to exert this type of influence, they must acquire a majority or at least a significant minority stake in the company.

Crowd investing

Crowdinvesting, also known as equity crowdfunding, is an alternative form of investment that enables start-ups to obtain medium to large amounts of capital through small investments from many people. To do this, you need to present your business idea on a crowdinvesting platform in order to attract a large group of investors. In return, the investors receive a percentage of the future profits or another form of financial compensation. One advantage of the crowdinvesting approach is that it allows start-ups to raise large sums of money without having to hand over any operational or decision-making powers to the investors.

Incubators and accelerators

Incubators and accelerators are useful tools for early-stage start-ups that need comprehensive support beyond just funding to realize their business ideas.

Incubator programs help start-ups develop their business ideas into a viable business model by providing support in the form of mentoring, workspace and infrastructure, and sometimes initial funding in exchange for company shares. Incubators encourage start-ups to innovate and work at an organic pace to nurture their ideas and develop them into something truly special. They are under less pressure to expand quickly and the focus is more on a supportive environment for initial ideation and early development.

Accelerator programs are a similar concept to incubators, with the difference that they are usually geared towards start-ups with a proven business model that are in the growth phase. The focus is on rapid scaling and expansion, helping start-ups to reach key milestones quickly. While incubators are often run by educational or government organizations, accelerators tend to be more commercially focused, with an emphasis on making a profit. Among other support systems, they almost always include equity investments in exchange for shares in the growing start-up.

How do you find the right investors?

Understanding which type of investor/s best suit your needs is a good beginning, but the next challenge is how to go about seeking out those investors. This can be a difficult and time-consuming process, but there are various ways to streamline and accelerate it:

Networking

There is no replacement for “on-the-ground”, personal networking. Engage with your existing professional network, attend industry-specific meetups, personally approach investors that you think are a suitable fit, and participate in online forums where investors are known to scout for potential investments. The more widely you can spread the word about your startup and your need for investors, the more chance you have of reaching the right investors who are interested in supporting your venture.

Competitions

Startup competitions are events where startup founders pitch their business ideas or products with the aim of winning resources and support that will help them launch or grow their business. This can include funding, mentorship, office space, equipment, or other services essential for startup development.

These competitions not only provide the opportunity to win valuable funding and other resources, but also give startups the chance to market their business idea to potential investors, who may then further spread the word among their own networks. These events often include media coverage, which can end up being a form free marketing for your startup pitch. An example of a startup competition in Switzerland where you may gain significant exposure is the TOP 100 Swiss Startup Award.

Startup events and conferences

Startup events, such as trade fairs and conferences, provide the ideal setting for networking and connecting with potential investors. These gatherings also help you learn about what investors are looking for, and gain insights into the latest industry trends which can inform your pitch and business strategy.

The pitch: how do you convince investors?

Be prepared with the essential points

Pitching your business idea and convincing investors is not something that is isolated to formal presentations where you have all the materials prepared. It is an ongoing process that can happen at the most unexpected moments. While networking and meeting potential investors, you’ll be required to repeatedly present your business idea in a nutshell and win them over with just a short conversation. This means its important to be prepared with the essential points about your startup and are able to answer key questions without hesitation. You need to be able to clearly and succinctly explain what problem your startup aims to solve, how it will do that, and how it can lead to profits for you and your investors. Know your numbers, understand your market, and be clear about your business model.

Create a comprehensive business plan including financial projections

Before you begin approaching investors, its crucial to create a compelling business plan which includes detailed financial projections and a solid marketing strategy. The business plan should be ready to send to investors who show greater interest in your startup and want to learn more about your model and plans before deciding whether to invest. Furthermore, the business plan can help you structure your own pitch deck and is a valuable resource for helping guide your own internal decision-making processes in the early phases of your startup.

Create a compelling pitch deck

Formally presenting your business idea to potential investors (or judges in the case of a startup competition) is known as a pitch. The pitch deck is the document you create which summarizes your pitch and helps guide you during your presentation. The pitch deck can also include useful graphics, slides, graphs, and other additional resources that add to your pitch. The pitch should present the essential facts about your startup, as well as be geared towards convincing investors of its promise. Focus on a narrative that highlights your startup’s potential, your team’s capability, and the problem you’re solving. Avoid overly technical language and long and boring details. The pitch should be comprehensive yet succinct, with the aim of telling a story that investors can relate to and feel excited about.

Avoid these common pitfalls       

The following common mistakes can discourage potential investors:

1. Targeting the wrong investors: Not thoroughly researching and targeting the right investors, considering factors like capital needs, business stage, and industry, can lead to instant rejection from the investors you approach.
2. Underprepared materials: Ensure all pitching documents, including the pitch deck, business model canvas, business plan and financial projections, are meticulously prepared as sloppy materials can be a major turnoff to investors.
3. Indiscriminate distribution: Distribute pitch materials selectively after establishing contact with potential investors, as spamming can waste the one opportunity you might get to make an impression and create an overall negative image of your business.
4. Inaccurate valuation: Set a company valuation that is both ambitious and grounded in reality to avoid turning investors off with figures that are unrealistically high or too low.
5. Lack of team synergy: For most investors, the right founding team is the decisive factor in deciding where to direct their capital. Investors often prefer a balanced founding team with diverse skills in product development, business management, and sales, as well as strong synergy, over a single founder with a great idea but a less capable team.

Top tips for finding the right investors for your startup

Let’s summarize what we have learned so far into the top tips for finding and winning over the right investors for your startup:

1. Timing: Engage with investors when your startup has refined its business model and can showcase solid developments like pilot projects or significant partnerships.
2. Choosing the right investors: Select investors who align with your startup’s phase and sector, focusing on those who bring not only funds but also valuable expertise and an established network.
3. Making initial contact: Utilize startup events, business angel networks, and competitions to connect with potential investors, leveraging existing contacts for introductions.
4. Convincing investors: Impress investors with clarity and transparency about your business idea and USP, in-depth market knowledge, a scalable business model, and a team with diverse skills and backgrounds.
5. Pitching: Present your business idea succinctly and engagingly, avoiding jargon and emphasizing storytelling to make a memorable impression. Also, be prepared with thorough knowledge of your financials to answer any investor queries confidently.

The legalities: negotiating the terms

Once you have found your investors and they have clearly expressed their intent to support your startup, the formal legal negotiations begin. This final step in securing your investors is the most crucial, as it determines the terms and conditions under which you are giving up your valuable company equity.

It’s vital that you show the right caution and discernment at this stage, never blindly accepting all the terms the investor proposes because you feel you desperately need the capital. Be clear about what is important to you in the agreement and negotiate in a friendly but firm manner. Understand every aspect of the investment terms, use legal advice to navigate complex agreements, and negotiate terms that safeguard your interests and facilitate a fair, productive relationship with your investors. The golden rule is to never sign a participation agreement that hasn’t at least been checked by a trusted lawyer.