Two Men Shaking Hands

The cost of starting a web-based business has dropped dramatically -- to the point where small teams can bootstrap their way to profitability in very little time, but most entrepreneurs will still find a need for investors of some kind.

For starters, not every business can run with zero operating costs. Some types of businesses, particularly those involving transportation, hardware manufacturing, or a retail business, still require an initial capital investment. And even for the purely digital business, costs tend to find a way of rising once users jump on board and server costs grow.

So how can entrepreneurs find investors? Here are a few options to get started:

Friends and family

The first round of money should come from your FFFs -- friends, family, and fools. Although this depends on how rich your network is, the typical size of a friends and family round is $25,000 to $100,000 per startup, according to a study by the Angel Capital Association.

Woman TalkingThis is the easiest way for a startup with no traction to raise money – as investors are usually participating more out of love of the founder than anything else -- but the risks are high; more than 90% of businesses at this point will fail.

Accordingly, entrepreneurs should work to establish fair pricing and respect the great risk that their friends and family are undertaking. 'Entrepreneurs should remember they will be sitting around the dinner table with their friends and family for a long time – possibly for the rest of their lives,' wrote angel investor and blogger Basil Peters on AngelBlog. 'This entire process is fraught with risk and potentially grievous relationship consequences.'

Align your interest with your investors and ensure everyone understands the rules of governance that are being established.

Work your social network

Thanks to the power of social networking, it's becoming easier and easier for us to realize that we have six degrees of separation from a wide array of people -- many of whom may be the kind of professional investors startups need.

Venture capitalist Mark Suster recommends entrepreneurs work their social network and hunt for contacts that are recruiters for startups, lawyers in the startup community, or affiliated with portfolio companies of professional investors. These individuals can help you gain access to investors.

Park at their blog

Girl with a laptop on a couchIn the era of social networking, contacting investors directly is easier than ever. Following them on Twitter, or becoming a regular commenter on their blog, can be a way to pitch them instantly (but don’t be obnoxious).

More importantly, and the better route, social networks and blogs offer a way to build a relationship over time, and work your way up from blog commenting to face-to-face interactions and a prosperous relationship with supportive investors.

TechCrunch has published their list of Top Ten Venture Capital blogs -- a good starting point for meeting investors and networking on their turf.


Last but not least are conferences. Although these often involve a fee -- TechCrunch Disrupt, one of the largest conferences in which entrepreneurs and investors can interact, can cost several thousand dollars per ticket in addition to travel and lodging expenses -- they provide unique opportunities to meet investors face-to-face in an environment where they are interested in being pitched.

As the startup market matures, events like PitchCrawl, a low-cost opportunity to meet investors over a meal, are becoming more common. Even just getting out there in the local startup scene and meeting people can be beneficial. You never know who you could be talking to. It might just be someone who wants to invest or knows someone who does!

As the startup economy booms and the networking capabilities of the Internet continue to mature, meeting investors will become more feasible for the determined and talented entrepreneurs. Of course, you'll still need the killer product to get them, and customers, on board.

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