The most promising early-stage startups are providing outstanding ROIs for shrewd investors. The challenge for founders is to find the right investment platform for their startup and secure both capital and practical support to supercharge the journey to market. In 2024’s more competitive investment landscape, it pays to understand investment mechanisms and connect with investors who understand your product and your goals.
In Part One of our Startups blog post, we explored the current investment ecosystem, the stages of identifying and evaluating Startups and mentoring them along the journey to market. Now in Part Two, we’re examining a variety of investment structures and options and offering some useful tips for founders who want to stand out from the mass of hopeful applicants and win funding from professional investors.
Identifying a Potential Investor
The bottom line with almost all early-stage startups is that they will require external funding to make the tough transition to a functioning company that is actively marketing a new product or service. In recent years, there was a global funding boom that saw venture capital firms and unicorns break all previous records. In 2021, global investment totaled a massive $623 billion. By the end of 2023, it had dropped to $285 billion.
There’s still plenty of money in circulation and no lack of investor enthusiasm for viable startups, but founders have to up their game and meet tougher investor criteria. You can save a lot of time by exploring the investor landscape and approaching the right VC firm, platform, or accelerator. It also pays to understand their expectations and adapt your strategy and mindset to maximize your chances of making a genuine connection.
Venture Capital (VC) Firms
Venture capital firms exist to invest and generally specialize in specific sectors or a few fields of expertise. Their goal is to make money and acquire equity in a portfolio of firms. When you work with VCs, you can expect a cold professional appraisal and a business-like approach.
When you approach VCs, you will deal with expert corporate investors with a proven track record. Companies like Sequoia Capital, Andreessen Horowitz, and Accel Partners specialize in providing funding to early-stage startups in exchange for equity stakes.
These firms bring not only capital but also strategic guidance, industry connections, and valuable insights that can help startups scale rapidly. By understanding the focus and criteria of each VC firm, you can tailor your pitch to align with their investment thesis, increasing your chances of securing funding.
Angel Investors
Angel Investors, often just called Angels, are Individuals with high net worth who invest their own capital into early-stage startups. The bottom line with Angel Investors is that they expect to see a clear return on their investments and employ a team of professionals to conduct due diligence and product evaluations.
One advantage of working with Angels is that there is usually an element of individualism at play. If you make a personal connection, you may be able to generate significant enthusiasm for your product. Examples of well-known Angels include Peter Thiel, Reid Hoffman, and Esther Dyson. This connection can also lead to more flexible investment terms and valuable mentorship, as Angels often take a keen interest in the startups they support.
Startup Accelerators
Startup accelerators are purpose designed programs that exist to fund startups, provide mentorship and resources and accelerate the, often fraught, journey to market. One advantage of startup accelerators is that they are focused on their specific role and are usually staffed by people (including successful startup founders) who believe in what they are doing.
Startup accelerator programs like Y Combinator, Techstars, and 500 Startups offer tailored structures for early-stage startups in exchange for equity. The best startup accelerators understand the needs of founders and their teams and can deliver practical advice and assistance, based on genuine experience.
These programs often include intensive mentorship, networking opportunities, and access to a wide range of resources, all of which can significantly increase a startup’s chances of success. By participating in a reputable accelerator, startups can quickly refine their business models, scale their operations, and gain visibility among potential investors and partners.
Crowdfunding Platforms
Crowdfunding platforms give startup founders the opportunity to pitch their concept to the public and invite funding from a mass of individual investors. The potential of crowdfunding is often overlooked by people who dismiss it as haphazard and unreliable. Crowdfunding can be a valid way to initially finance a brand new concept and get it to the early startup stage. However, crowdfunding can be a valid way to initially finance a brand new concept and get it to the early startup stage.
Websites such as Kickstarter, Indiegogo, and OurCrowd can generate funding, and a few users will launch successful businesses on crowdfunding alone. One disadvantage is that crowdfunded startups won’t get the mentorship and professional support that comes with an accelerator or corporate startup hub. Additionally, in some cases, less rigorous due diligence can also affect outcomes.
Despite these challenges, crowdfunding offers a unique advantage: it validates the market demand for a product early on. Successfully funded campaigns can also attract the attention of traditional investors who see the demonstrated public interest as a positive indicator of potential success.
Corporate Venture Capital
One of the most effective solutions for startup founders is to join a corporate venture capital program. Major companies offer structured investment in early-stage startups that are innovating in their field or that align with their own strategic goals. The advantages are obvious for any founder who’s willing to surrender a portion of equity to one of the big names.
Companies like Google Ventures, Intel Capital, and Microsoft Ventures offer early-stage startups investment capital, access to their own software and technologies, as well as mentorship and practical assistance. One interesting example is the ICL Planet Hub that is investing in a variety of agrifood and climate tech startups, with a focus on sustainability and disruptive technologies. These partnerships provide startups with not only financial support but also strategic resources that can accelerate growth and market entry.
A good example is Planet StartUp Hub, ICL’s corporate investment arm. It invests in a variety of agritech startups, focusing on sustainability and disruptive technologies. By aligning with corporate venture capital programs, startups can leverage the extensive networks, industry expertise, and operational support of established corporations, significantly enhancing their chances of long-term success.
Government Grants and Programs
Governments are usually keen to encourage new businesses and promote enterprise. There are a variety of programs around the world that seek to enable the growth of early-stage startups and give them access to professional networks and mentorship.
These programs are often underutilized and are worth researching in more detail. Although government programs have official acceptance criteria, they can sometimes be geared towards helping disadvantaged applicants.
Official initiatives such as the Israeli Innovation Authority (IIA), the Small Business Innovation Research (SBIR), and the Small Business Technology Transfer (STTR) in the US provide grants and funding to early-stage startups that meet their program criteria. These programs can be a useful starting point for tech entrepreneurs who are ready to begin the journey to market.
By taking advantage of these resources, startups can secure crucial funding without giving up equity and can benefit from the additional support and credibility that come with government-backed programs.
Incubators
Incubators are similar to accelerators but are aimed at new companies in their very earliest stages. They tend to offer more modest initial funding options and focus on providing practical support to founders who have a valid disruptive concept but don’t yet have a functioning business structure.
There’s no precise boundary between incubators and accelerators, and in some cases, very early startup founders might benefit from joining either. Incubators like Entrepreneur First and Founders Factory offer funding, workspace, and support services to help early-stage startups grow and succeed.
By joining an incubator, founders can refine their ideas, build a solid business foundation, and gain access to valuable resources and mentorship. This early-stage support is crucial for turning a disruptive concept into a viable business.
Online Investment Platforms
Online investment platforms are the dating sites of the startup ecosystem. They connect pre-vetted startup founders to (usually) accredited investors via a secure platform. The goal is to bring serious investors and entrepreneurs together and reduce the amount of time it takes for startups to secure funding. The benefit for potential investors is that they are dealing with pre-screened startups.
Platforms like AngelList, SeedInvest, and Agfunder are industry leaders and offer different variations of the basic online middleman model. Online Investment Platforms can be a convenient way for founders to get exposure to high-value investors and receive introductions with minimal expenditure of time and resources.
These platforms also provide a level of transparency and trust, as they typically conduct due diligence on both parties, ensuring a more secure and efficient investment process.
5 Useful Tips for Investors
If your goal is to connect to an investor and negotiate a round of funding, or a place in an incubator or accelerator program, you can save a lot of time and effort by formulating an effective strategy. These 5 tips will get you started:
1. Perfect Your Pitch
First impressions count, particularly when investors sift through a high volume of applications. Keep your presentations concise and factual, and make them compelling. You don’t want to appear glib or overconfident, but be direct about your startup’s value proposition, market opportunity, and traction achieved so far, as well as the quality of the team. If you’re not good at addressing an audience, get some coaching – it’s a professional skill that you’ll need regularly when your company launches.
2. Build Relationships
Personal relationships count for a lot. Even if the person you’ve built a rapport with doesn’t want to fund your startup, they might know someone who does. They might even get back to you months later with a referral. Attend networking events, use social media, make contacts, and get to know people. Even if you’re nowhere near ready to seek funding, it’s already time to build a network.
3. Demonstrate Traction
If you’re up and running – even on a small scale – exploit any evidence of market validation and traction. Don’t exaggerate or embellish the figures, but do present them as positive achievements and proof of future potential. If you can’t show revenues or customers yet, you can show milestones and progress. Display forward momentum and an aggressive and dynamic approach to growth.
4. Be Transparent and Coachable
The worst thing you can do is try to bluff investors or gloss over issues. Be open about the challenges you face and how you are working to overcome obstacles and pain points. Showing honesty and humility – and a willingness to listen and learn – will impress smart investors. Make it clear that you value constructive criticism and welcome professional advice and insights from people who know the markets.
5. Diversify Your Funding Sources
Think outside the box when it comes to funding and don’t depend on any single model or source. As long as you sign an equitable deal that also brings you the practical assistance, mentorship, and coaching that you need, it shouldn’t matter whether you’re with a VC firm, an angel investor, or a corporate partnership. Diversifying funding can expose you to greater opportunities and expertise while reducing risk. Don’t write any option off without exploring it in detail.
Take the Next Step Towards Funding
ICL Planet Startup Hub is keen to build long-term partnerships with entrepreneurs in the agritech, foodtech, and climate sectors. The program has a proven track record of helping early-stage startups achieve their market potential via a choice of three investment tracks. Partners gain access to ICL research facilities, as well as tailor support and collaboration, including pilots, Beta support, and field trials.
Innovative companies like Protera, Lavie Bio, and Agrematch, Plantible are on a journey to market with Planet Startup Hub and continue to benefit from their partnership with ICL. If you’re ready to disrupt the agtech, foodtech, and climatech sectors and are aligned with ICL’s goals of sustainability and innovation, we want to talk!
Take the next step towards funding and join a community of forward-thinking entrepreneurs committed to making a difference in the world. With ICL Planet Startup Hub, you’ll gain not just financial backing, but a strategic partner dedicated to your long-term success. Reach out to us today and let’s build the future of agritech, foodtech, and climatech together.
This post was written in cooperation with Hadar Sutovsky, ICL VP of Corporate Investments & General Manager of ICL Planet
Hadar combines extensive expertise in startup investments, venture capital, incubation, innovation, and global business development across international sectors, with a focus on Climate, Sustainable Agriculture, and Foodtech. Prior to ICL, Hadar served as a Managing Partner at Aquagro Fund, a dedicated impact investment management firm. Along her professional path, Hadar led Innovation and investments in areas of AgriFood & Sustainability for the Global Unilever Open Innovation Hub in TLV and Frutarom. Hadar holds an MBA in Strategy and Innovation and MSc in Molecular Microbiology & Biotechnology from Tel Aviv University. Beyond her professional endeavors, she generously volunteers as a certified Yoga teacher to contribute to the community. Hadar is married and resides in Tel Aviv. For more info follow Hadar on LinkedIn and ICL Planet website.
The post How to Make Successful Investments in Early-Stage Startups: Part Two appeared first on ICL Accelerator - Planet Startup Hub.