How to find an investor: 10 real ways in 2020 (+ suggestions)

Rusbase often acts as a project search operator for investors of various types. In 2020 alone, we selected projects for QIWI Venture, NP GLONASS and a group of investors in b2b services. We also do this all the time as part of our online service Pipeline, which helps investors and entrepreneurs find each other.

Of course, we are not the only ones who do such things. But, as a media and networking platform, we know venture players and startup search tools well. That’s why we get asked every now and then about how to start investing in venture capital and where to look for quality projects. This is of interest to both individuals with accumulated capital and large companies thinking about introducing innovations. It seems it's time to tell everyone about it.

How can you invest?

The choice of investment method depends on how much money you are willing to invest in venture projects and how much time you can spend on them. In a column on RB.ru, Prostor Capital Managing Director Alexey Soloviev points out five ways to become a venture investor:

1. Invest through crowdinvesting platforms - platforms for collective private investments with the aim of making a profit. This differs from crowdinvesting to crowdfunding, where successful investments only give you prepaid goods or some privileges (for example, discounts).

With crowdinvesting, the investor receives:

• percentage of project income (this model is called “royalty”)
• return of the invested amount with interest (this model is called public lending)
• share of the company (this model is called equity crowdfunding)

Crowdinvesting is convenient for beginners because it allows you to invest small amounts of money at once in a bunch of projects and gain experience. On the other hand, there is a high risk that crowdinvestment projects will be unprofitable or not implemented at all. In addition, in Russia the legislative framework for crowdinvesting has not been developed - the rights of investors and the obligations of the investment object are not fixed. The only option for crowdinvesting in Russia is participation in the company’s share capital. For example, the investment pool of one project includes 10-15 people.

Of the domestic crowdinvesting platforms, perhaps the most famous are:

• StartTrack (works as an information service for investors, but recently launched a public lending model, which allows you to invest in Russian startups from 100 thousand rubles for a period of 30 days).
• SearchFunds
• MyPIO

The project manager of the crowdfunding platform Planeta.ru, Petr Vyrupaev, wrote that the target audience of such sites is the middle class, who have saved from 100 thousand rubles to several million. According to the SearchFunds platform, our crowd investors invest on average from $1 thousand to $7 thousand.

Also, novice investors can try the p2p lending model. For example, the domestic platform “City of Money” brings together private investors and borrowers (small and medium-sized businesses). The company’s specialists evaluate projects before adding them to the database, checking their credit history and solvency. You can invest amounts from 10 thousand rubles for a period of six months to 3 years. The agreement is concluded directly between the investor and the borrower. The average rate for an investor is 35% per annum.

2. Become a business angel - that is, regularly invest in early-stage businesses for a share or convertible debt (this is when the investor receives a “discount” on the purchase of shares in the next round). Angel investment amounts typically range from $50,000 to $300,000. Angels support startups at the business idea level and those that already have a product prototype. So the risks are very high. To diversify them, you need to finance 10-15 projects, which assumes a sufficient amount of capital. In addition, a business angel must understand the chosen niche in order to competently evaluate the project, and have sufficient experience to influence the development of the portfolio company. If these conditions are met, venture investments can bring him decent money.

Here you can see the top 25 most active Russian angels in 2015.

3. Invest through investor clubs - the investor indicates his preferences to the club, which looks for a suitable project and organizes a deal for which he receives a commission. The money remains with the investor until the documents are signed, he controls everything and at the same time spends a minimum of time. Clubs are very convenient for co-investment: a novice investor can enter a good project with a small amount. However, there is a risk that in pursuit of the number of transactions, the fund may lower the bar for selected projects.

Rusbase collects such communities on a special page, but now recommends the following:

AltaClub is a club of business angels for investing in startups together with the AltaIR Capital fund. A club member must be willing to invest at least $25 thousand in each company.

The Angel Club of the Moscow School of Management Skolkovo unites more than 100 participants with an investment potential of $250 million. It considers projects at all stages and syndicates transactions with up to 5 people.

Smart Money Club is a community of business angels and investors who participate in demo days of GVA Accelerator projects and other events of the GVA LaunchGurus fund, receive analytics and insights from it. Typically, no more than 10% of their savings are invested in venture capital; you can start with small amounts of $5-10 thousand, says Zamir Shukhov, director of GVA LaunchGurus.

SmartHub is a venture boutique that matches projects with authorized investors. The transaction fee is 10% of the investment amount and 15% of the exit amount.

Moscow Seed Fund is not exactly a club. This is a fund for promoting the development of venture investments in small enterprises in the scientific and technical sphere of Moscow. Supports projects financed by private investors with preferential loans. The loan is twice the amount of private investment and ranges from 500 thousand to 8 million rubles per enterprise. The fund selects investors for joint financing of projects on a competitive basis; currently 30 angels and funds are working with it.

4. Transfer the money to a venture fund for management . Professional selection of projects reduces risks, and an investor can join a venture without special knowledge, experience or desire to obtain it. The fund works with the projects, the investor pays him a commission for managing the money and receives dividends. This type of investment is very popular in the West, but not in Russia - we have practically no serial funds that have shown several cycles of successful investments. In addition, many funds take money only from trusted people - newcomers should first enter the social circle of the investment company’s management. According to market participants, the lower threshold for this type of investment is $500 thousand.

5. Create your own venture fund - this will require renting an office, maintaining a team and at least $10 million in investment capital. As a rule, funds invest in more mature projects than business angels. The typical deal size is from $1 to 5 million, with 70% usually not yielding returns. Your own fund carries the highest risks, the greatest time costs, but the profit in case of success is much greater.

For detailed instructions on how to achieve this, read our article “How to launch a venture fund.”

Stages of development of a successful startup

All businesses have life cycles. Startups also develop through certain stages.

Idea stage, business plan, financial forecast, market analysis

Everyone thinks they have a million dollar idea. Some modestly think they have a “great idea.” But it rarely comes to fruition and market success.

The most common reason is a flawed concept. The product either repeats what already exists or solves an invented problem. Therefore, before investing, you need to carefully study your target audience and the potential market fit of the new offering.

Do people really need this product or service? What problem does this proposal solve? Has your idea already been implemented by someone? The answers to these questions will help separate the really useful startup from the garbage one.

Co-founders stage

This is where you move from concept to putting your research into practice. Prototypes are created, processes are developed, and a team is formed.

At this stage, there is time to improve the business model and develop the concept of a viable product as much as possible. You can slowly start a marketing campaign so that by the time the product is released, the public will already be warmed up.

Seed stage

Seed capital is an early investment intended to "seed the pants" of a business. This seeding continues until the startup begins to generate its own cash flows and becomes self-sufficient. The main sponsors of this stage are friends, relatives, business angels and users of crowdfunding platforms.

Startup stage

Once all the preliminary matters are settled, it is time to begin production. Many rightly believe that this is the riskiest stage of the entire life cycle. This is actually true. Mistakes made at this stage are the main reason why 25% of potentially successful startups fail or are absorbed by competitors.

Acceleration

Starting rush. Occurs, as a rule, in the first year of launch. At this stage, the company begins to demonstrate prototypes, participate in competitions and actively promote its product, acquire its first customers and new investors.

This period is an indicator. We will find out how viable the company is and whether it will be any good. The main thing for an investor is not to confuse the initial breakthrough and real growth. They are at different stages of the startup life cycle and play completely different roles.

Early growth stage

If a company is at this stage, it means the business is gaining new customers and generating a constant source of income. Investments are enough to cover the costs of maintenance and promotion.

The biggest challenge for entrepreneurs at this stage is dividing time between a number of new tasks that require attention (managing income and expenses, servicing new clients, fighting competitors, finding labor, etc.).

Expansion stage

At this stage, business management becomes routine. The staff has been formed, and the need to personally control everything disappears.

This is where you can start thinking about how to capitalize on this stability by expanding production, launching a new product, or entering a new market. There is a saying in business: if you don't move forward, you move backward. Therefore, if you don’t occupy the market, someone else does.

IPO launch stage

The dream of any startup is to raise the company to public level, issue shares and begin trading them on the stock exchange, gaining access to the largest global investment market.

After an IPO, a company can not only raise more investment, but also generate additional funds through secondary offerings, or more simply, by trading its own and others' assets on the stock exchange (investment in or speculation in securities).

What types of investors are there?

This division is quite arbitrary, but Rusbase uses it as a kind of basis. Depending on their background, investors can be divided into:

• novice investors (for whom this article was written)
• professional private investors (or business angels)
• representatives of investment funds (this may be a managing partner, partner, investment director, analyst, investment analyst),
• representatives of corporate venture funds (including heads of investment departments and R&D centers of corporations)
• strategists (these are representatives of large companies that absorb young technology companies for innovative development or diversification)

Is it profitable to invest money in a startup?

According to statistics, 90% of startups fizzle out in the first months of their existence. But those that remain have the potential to generate explosive revenue growth.

Also, investing in startups is a good way to diversify your portfolio. Will this be of any use? The success of tech giants such as Facebook or Uber suggests that it will. Although investing in startups is a big risk for the investor, it carries high return potential.

Advantages and disadvantages

Investing in a nascent business has its own characteristics, advantages and pitfalls.

Advantages of investment:

1. Control over investments. Most startups don't need a lot of money to get started. This means that our contribution could give us a significant stake in a future company or even a seat on the board of directors.
2. Diversity. There are startups in many markets and industries. This is a great way to diversify your investments while reducing risk.
3. Great potential for profit. If a startup takes off, it can bring huge profits to those who have time to invest something. Being at the origins of a young company is often more profitable than buying shares of already well-known brands.

Disadvantages of investment:

1. Risk. Startups are considered a high-risk investment because more than 90% of businesses fail. Some markets are extremely competitive or oversaturated, and some business ideas just don't work.
2. Impossibility of accurate forecasting. Even in top economies, not to mention emerging markets, it is difficult to predict the success of a startup. There are too many influencing factors, the result equally depends on the idea, the quality of execution, the hard work and enthusiasm of the developers and on pure luck.

Advantages and disadvantages of crowdfunding

The philosophy of crowdfunding is “let’s do it together.” The idea is to involve a large number of people in the implementation of the project, as well as accelerate testing and promotion of new products.

The beauty of crowdfunding is that companies receive investments, and sponsors receive profits, without the intermediary of banks, stock exchanges and venture funds. Another big advantage of crowdfunding platforms is that they have streamlined the donation process. It has become simpler and less bureaucratic.

Advantages of crowdfunding for investors:

• diversification of the investment portfolio;
• potentially high returns;
• easy start (investing online);
• low entry threshold (the minimum contribution varies depending on the business concept of the platform and on average starts from $300).

Thus, this is a great opportunity for investors to invest in innovation and get rewarded for it. One of the disadvantages of such investments is that it is difficult to choose a worthwhile project. The venues attract crowds of enthusiasts. And it will be difficult to immediately calculate which project will work and which will not.

Risks

Main investment risks:

1. Return risk. Investing in startups is partly a lottery. Return on investment is not guaranteed.
2. Main risk. The entire investment amount is at risk. The startup does not have shares that can be quickly sold on the stock exchange, partially compensating for losses.
3. Competitive risk. A startup may face competition from other companies working on the same problem. If their solution is better, we are in the air.
4. Market demand risk. Even if the product turns out to be suitable for investment and does its job well, it is not a fact that people will like it or buy it. Pure psychology.
5. Personnel risks. Investment in a startup often depends on the enthusiasts who created the startup. If they are disappointed or come up with something better, everything will be covered with a copper basin.

Where to look for startups?

Unless you join more experienced investors within a club or investment company, you will have to look for projects on your own. Well-known foundations receive an endless stream of letters from entrepreneurs. And if no one knows about you, where to find interesting startups?

1. Register as an investor in startup databases , where you can sort projects by niche. This allows you to significantly optimize the search: project descriptions are usually well structured (unlike letters from inexperienced founders) and undergo at least minimal moderation (its strictness depends on the policy of the resource). In addition, this format makes it easier to compare projects.

There are a lot of such sites in the world, but we recommend these:

AngelList is the founder of the genre and the world's main service for finding startups and investments, which has spawned many clones (ours are listed below). Its database includes 1,589 startups and 378 investors from Russia. AngelList provides opportunities for co-investment in projects, posting vacancies and resumes.

Pipeline on Rusbase is a service for finding quality projects and co-investors. We accept startups into the database only if they have a working prototype and signs of demand (there are currently about 350 such projects), investors - only if they are willing to invest at least $50 thousand in one project (their list exceeds 200 names). Investors get access to a database of co-investors and startups, and also receive a weekly newsletter with current events and new projects. Pipeline also helps us organize speed dating meetings between investors and startups.

StartTrack is a crowdinvesting platform that also works as a base for startups. This is a IIDF project. They help conclude syndicated deals, including at closed meetings of private investors. Those who are ready to invest from 300 thousand rubles in one project are invited to these events. Today, 725 investors cooperate with StartTrack, 37 projects are available in the database, and there is also the opportunity to invest in the turnover of online stores at 30% per annum.

Spark was created as a service for finding an investor, now it positions itself as a hangout for technology projects (similar to Habr), where you can share experiences and post vacancies. There are 4249 projects in the database, 1329 of which are seeking investment.

2. Look at open databases about startups . This is a convenient place to look for projects that have already attracted investments—startups end up on such sites as a result of public transactions. There is a clear chronology of each fund's deals and each company's rounds.

CrunchBase is the largest database on the venture market, containing more than 650 thousand profiles of startups and investors.

Data on Rusbase is an encyclopedia of the Russian venture market: chronology of deals, profiles of startups, funds, private investors, personalities. All this with the ability to search by niche, round and region. Our database contains information on 516 funds, 2295 invested companies, 2607 deals, 175 incubators and accelerators.

3. Follow the finals of competitions and preferably go to them . Thanks to competition among projects and jury selection, the strongest teams reach the winning end, which often attract the attention of investors. We collect current information about entrepreneurial competitions here.

GenerationS is an annual federal accelerator competition for technology startups, organized by RVC. In 2020, GenerationS industry tracks (energy, telecom, robotics, aerospace technology, smart city, oil and gas and biotech) were conducted in collaboration with corporations. To work with projects, a company needs to become an accelerator partner.

Web Ready is an international competition and investment forum for IT projects. It has been held since 2009 with the support of the Skolkovo Foundation. Here is a list of competition winners from previous years.

Russian Startup Tour is a competition of innovative projects of the Skolkovo Foundation. Qualifying events take place in 13 cities of Russia, Belarus and Kazakhstan. The winners of the competition participate in the Startup Village conference and share a prize fund of 100 million rubles from the Bortnik Foundation.

The “Startup of the Year” award is awarded annually to innovative companies no older than 3 years. The best startups are chosen by representatives of the business community.

4. Monitor accelerator releases . The goal of such programs is to quickly grow early-stage projects to the level of first investments (usually angel investments). Accelerators usually charge 3–7% of the company for their services. They are interested in finding investors for them in order to recoup their costs with a successful exit. Those who come from accelerators are always of higher quality than other projects - they are selected at the application stage, during the training process and as part of the final presentation. Therefore, it is beneficial for investors to be friends with accelerators.

The most famous and active on the Russian market are:

The IIDF accelerator selects experienced teams of at least 2 people, with a legal entity, a business model, a market volume of at least $10 million and the possibility of monetization during acceleration. The list of graduates can be found here.

iDealMachine works with knowledge-intensive and IT projects at the seed and pre-seed stages. Entered the top 3 best European accelerators and the top 5 best global accelerators according to the UBI Global 2020 rating. The accelerator’s portfolio currently includes 23 projects. In addition, iDealMachine offers investors a paid test of the viability of projects of interest through a 4.5-month acceleration program.

GVA LaunchGurus is an ecosystem for supporting innovative entrepreneurship, which combines an accelerator, a seed fund, a program of cooperation and co-investment with Silicon Valley investors, educational events and consulting. GVA LaunchGurus offers investors co-investment in its portfolio projects and various consultations (including the development of new directions and products in companies). Graduates can be viewed here.

The Startup Academy at the Skolkovo School of Management has graduated more than 200 entrepreneurs. 20% of graduates’ projects attracted investments (a total of more than $20 million).

MetaBeta works with teams that have competitive technology, global ambitions and knowledge of English. The accelerator offers business angels its portfolio companies for co-investment, examination of third-party projects and consultations for their portfolio companies. For corporations, MetaBeta searches and selects startups on the open market (it costs $10 thousand), helps create an ecosystem for corporate innovation, and advises corporate startups.

Investor reviews

There are many opinions about such investments.

For example, Rackspace analyst Robert Scobble does not advise investing in startups for those who are not well acquainted with the stock market and do not have other assets in stock. In his opinion, this form of investment has an unreasonably high risk. Therefore, it is suitable only for those who have already amassed a decent capital and are ready to donate it for experiments.

Co-founder and CEO of Petcube Yaroslav Azhnyuk is confident that the future lies with startups and investments in them. In his opinion, the main thing is to find people with experience in startups, even unsuccessful ones. These people have already hit their stride and thought about how to get around possible problems.

He also emphasizes the need to immediately squeeze the maximum out of the chosen niche before competitors wake up. If this requires going to Africa, the USA or China, then you need to do it. Otherwise, there's no point in bothering.

Readdle Marketing Director Denis Zhadanov is also a supporter of investing in startups. And he also has his own tricks.

For example, he recommends investing only in those startups that have managed to list on Western crowdfunding platforms, especially American ones. They have a better chance of being noticed and appreciated by investors and large companies.

Where to gain knowledge?

1. Monitor market analytics - we collect all reports here.

2. You can take educational programs for venture investors , for example:

IIDF Venture Investor School. They have already trained 80 novice investors who have invested an average of $100 thousand in projects. Graduates receive membership in the IIDF business angels club and access to the fund’s startup database.

The GVA LaunchGurus Venture Academy is an intensive training program for business angels. Representatives of leading venture funds from Russia and Silicon Valley teach how to evaluate projects and reduce risks.

VentureClub educational program for business angels

School of Business Angels and investment sessions of the Union of Business Angel Organizations

We inform Pipeline participants about new educational programs and also collect all current courses here.

3. Subscribe to thematic media - Rusbase, vc.ru and Firrma. Roem and “The Secret of the Firm” also periodically write about venture investments.

4. Watch video lessons from Venture Kitchen - this is an educational project of RVC and HSE on the Rusbase platform, which was created in 2013 as a knowledge base for novice investors.

Step-by-step instructions for a novice investor

No area of ​​business will generate income without a clearly thought-out business plan. So here, investing requires a detailed investment plan, which will be spelled out in detail and provide for any scenarios for the development of events, as well as options for getting out of bad situations.

According to statistics, 70% of startups become unprofitable in the first year, and 90% in the second year. And one of the main reasons for this is the lack of a clear plan and leadership that will include minimizing risks.

I present to your attention approximate instructions that any novice investor should follow.

No. 1: Finding the right business area

Pros know firsthand that it can be extremely difficult to find a suitable area of ​​business that will bear fruit in the future.

Many people are afraid of the new, the unknown. In the field of investing, you need to forget about this fear. After all, it is innovative and revolutionary ideas that become the most profitable projects in the future.

But the difficulty lies precisely in finding such an innovative project and idea that no one has ever worked on before.

This is the most profitable option. But if you are still afraid that such innovations will not take root, then you can try something more conservative. But remember the competition. Always calculate the relationship between supply and demand. If there are many companies around that provide similar services, then it is unlikely that your company will make a profit in the face of such fierce competition.

#2: Taxes

Any business activity in Russia is necessarily subject to taxation. Therefore, the next step is to select a suitable system. I recommend a simplified taxation scheme, which is offered by the state to small businesses. This will significantly reduce costs.

No. 3: Company registration

Next, you need to decide on the organizational and legal form. It will also depend on the size of your capital. Often, small businesses are asked to choose an LLC or individual entrepreneur. Which one to choose is up to you to decide. But individual entrepreneurs imply a simplified registration procedure and subsequent reporting.

No. 4: Opening a current account

It is necessary for your future profits to flow into it. At this stage, you need to decide on the bank that will service it.

No. 5: Implementation of your project

Well, after all the preparatory stages, you need to proceed to the most important and difficult thing - starting your company.

Risks when investing

In any investment field there are two main participants: the investor and the business owner.

The investor's goal is not only to invest in business development. He does this for only one purpose - to increase his own capital.

The company's goal is to find an investor who will provide money for business development. So that in the future it brings net profit.

As you can see, the ultimate goals of both parties are the same - making a profit. Only it is achieved in different ways.

In addition to making a profit, there is a secondary task - to minimize risks! They can be divided into organizational, financial, legal and government.

Risks can be managed during the business process itself, but you must first specify them in the contract. Pay attention to the business plan that the startup owner provides you with. If you are not very well versed in this aspect, then it would be better to hire an independent specialist who will carefully check all sections.

Often, novice startupers, who themselves are not particularly versed in running a business, make serious mistakes in their plans. Sometimes this is done deliberately in order to inflate profits and interest investors more.

To reduce risks, it is best to invest money in an area in which you yourself understand very well. This way you can independently control all actions and stop any fraud on the part of the business owner. And such cases happen in the modern world.

Conclusion

Investments in startups are currently one of the most profitable ways to increase your capital. But I want to immediately warn you that, along with high profitability, this method of earning money has high risks that a novice investor cannot always control on his own. It is important to pay special attention not only to the selection of projects themselves, but also to the further conduct of business. Let many say that specialized knowledge is not always required, but its presence can further reduce the risks in such a business. I hope that my recommendations will help you start your investing career and become a financially independent person in the future!

Investors: concept and classification

Sources of investment are usually divided into 2 main types:

1. Venture fund. Such organizations specialize in collective investment. The fund's capital is the amount of invested funds by its participants, that is, investors who are interested in receiving a profit, the value of which would exceed the market value. This goal is achieved through risk diversification. The fund's participants compile an investment portfolio, which, in addition to the assets of reliable companies, includes shares of young enterprises with high potential. Venture investments are directed primarily at financing new commercial organizations engaged in the creation of innovative products based on the latest scientific developments, which are highly likely to be in demand on the market. For the banking sector, financing such projects goes beyond the acceptable level of risk, so the main source of financing for innovative enterprises is either private investors or venture funds.
2. Business angel. This is the customary name for a private investor who is willing to take risks and invest personal capital in the development of a new company at any stage of its formation. It is worth saying that finding such an investor for a startup in Russia is quite difficult. This is explained by statistics on the activities of private investors:
   34% completely lose their invested money due to project failure;
3. 13%, after implementing the startup’s idea, receive virtually no profitability;
4. 17% receive an insignificant profit, which can be compared with passive income from a bank deposit (no more than 18% per annum);
5. 13% receive average income from investment activities, which today varies from 30% to 50% per annum;
6. only 23% remain satisfied after the project is completed because the profit meets expectations.

Therefore, to attract a business angel, you should try to convince him of the feasibility of financing.

The main distinguishing feature of business angels from venture funds is their desire to take part in the implementation of the project. Investment companies study in detail the current documentation of the company and the details of the planned project. If a positive decision is made, the startuper receives financial support and pays the agreed dividends during the implementation of the idea. A business angel may insist on personal participation, which the project initiator does not always like.

Even if the venture fund has made a positive decision to finance the project, it may take about a year before the funds are actually credited to the current account. If you manage to convince the business angel of the profitability of the idea, then you can expect injections in the near future.

How and where to start looking for an investor for a startup

Taking into account most of the possibilities of the Internet, it becomes obvious that the search for an investor for a startup should start with him. Today you can find special websites where users can freely publish their ideas to attract investment. This is advisable if there is a clear understanding of the startup’s development strategy. Such sites are very useful because everyone has the opportunity to get acquainted with the ideas of other users and communicate with investors without intermediaries.

You can't openly reveal the whole idea. The presentation should be brief. In the first stages, you should wait for comments from other users and possible responses from investors. This will help determine the prospects of the project and identify shortcomings.

If the idea can interest the investor, he will ask to see the business plan. This should be taken care of in advance. It would also be a good idea to register an individual entrepreneur (at a minimum) and open a current account. This will increase the level of trust. Otherwise, you will not be able to receive funding.

It is important to indicate the following points in the description:

• briefly outline the essence of the idea and its uniqueness;
• describe the startup team (in more detail here);
• point out potential competitors and argue your advantages;
• the required amount for the implementation of the project with a detailed description of the costs;
• stages and timing of idea implementation;
• talk about ways to attract the target audience.