What’s the catch with “Investors”


I am starting a web application/community soon, and I was wondering if I need an investor. I will need some money in four-five digits. Not a lot, maybe around 5,000-10,000. Maybe even less, but I think its a good idea to go with 10,000 or so.

What should I have planned (I have a lot of things planned already but what exactly Should I must have) before I look for an investor?
Whats the best way to talk to them?
Whats the best place to get started?
What do most Investors look for in entrepreneurs?
Also the biggest question I have is, how do investors work really? Do they just give you cash and say, okay release the product? Or Do they give you a adate that you must finish by? Do they also help in other aspects except financially? For example, PR, Marketing and so forth? Do we just say, “This is how much I need” and do they give that much? What do they want in return? Do they want a share of the company? If so, how much do they usually ask for (percent wise) and lets say they get like 40-50 % of company, what do they have a right? Will they bug me for everything we do? OR, do they say within this amount of time, I want my money back with X amount of interest?

Please let me know.

Thank you A LOT!

As Sagewing pointed out, the amounts you are talking about are way too small for any serious investor. I don’t just mean typical angel investors either. The average doctor or dentist with some spare cash isn’t going to take the time or trouble to consider a $5,000 or $10,000 solo investment. Even a return of 100% doesn’t throw off enough profit to justify the effort to understand the business and the investment risks.

Yours is a “friends and family” investment opportunity. You need to have a personal relationship where the investor either knows you or knows someone who can personally vouch for you and your abilities. Concentrate your efforts in that direction.

you might not even need an investor.

There are a few ways to raise such a little amount of cash

  1. sell stuff on ebay until you’ve raised enough. Do you really need a car or a big screen TV?
  2. take out a personal loan at your local bank. If you already have a job and can afford the payments, then this would be the easiest way. They wont ultimately care what its for as long as its legitimate.
  3. Use a platform like kickstarter to raise awareness for your project. This would actually be a good way to test out your ability to sell your concept. [URL=“http://www.kickstarter.com/projects/196017994/diaspora-the-personally-controlled-do-it-all-distr?pos=13&ref=recommended”]Diaspora is a great example of what is possible with this platform.

Thank you very much. Also, its basically same thing when we “partner” with a network right? For example, CBS, Spike Interactive… they also partner with people who have good ideas.

For such a small amount of money you aren’t going to get a professional or ‘real’ investor. You are going to have a sort out a deal with family, friends, or someone else who is willing to consider this on a more casual basis. So, you have much more flexibility in the deal and can work with you investor to make it work best for everyone.

In the more formal world of investment, there are ‘standard’ deals that go around and typically you’ll need an excellent business plan with named participants involved, business entities to support equity sharing and other things like that. But then, you won’t get a formal investor for just a few thousand dollars, and maybe not even a few hundred thousand dollars. I have never met an angel investor who is looking for a 6k opportunity :slight_smile:

There are some other things, like incubators, that you could look into. There are resources for bootstrapping businesses and ways to get small amounts of money if you look around.

The thing is that in business there is no such thing as a good idea until it’s been proven in the market. Ideas are cheap. Execution and the executioner of ideas are valuable.

So say if you approach someone that is far bigger than you in the market. They will either reject you, or let you have a tiny share, unless the rest of your package, beside the core idea, is solid.

Unless you know them, be careful approaching a professional angel investor with a deal that is too small. Remember they need to justify the time and energy they put into it. A study in the UK showed that the average investment was USD 69000.

I would first look toward friends and family. To invest small amounts each, they don’t need to be really rich. Have more people invest (not too many), and you’ll get their involvement and network connections “for free”. Just manage expectations well, so you’ll stay on good terms if the business fails.

Investors look at YOU (and your team, if any) first and foremost. Second they look at how far along the idea has been executed and how well the key critical points have been proven. Third they look at the layout of the idea and your business proposition.

Assess what are your key critical issues of success in the market. E.g. lets say you need 100 signups in your community per day to succeed. You’d get a long way if you can demonstrate how to get 10 per day with x amounts of cash, and then justify that with y amounts of cash the number would be 100.

Your questions are really good, but generic. The net is full of investment information. I would read up on the subject, because it would take a new Sitepoint book to cover your questions well (There’s a book idea for you folks at Sitepoint). :wink:

You can start here:
http://venture-capital.alltop.com/ (Venture capitalism is a step after angel, but you’ll find angel info there as well)
And good old Wikipedia: http://en.wikipedia.org/wiki/Angel_investor

Good luck!