Despite some recovery in the investment landscape in Q1 2024, securing investments, especially at very early stages, stays a challenge.
That said, there is a growing category of investor that is still not considered a potential source of funding by many founders – individual investors.
What I mean here are non-accredited investors who face many restrictions when investing in start-ups, but are often ready to finance projects they find interesting.
However, attracting money from retail investors has its own specifics.
Competing with public markets
First, individual investors have many opportunities in the public market, which is not at all times an advantage for founders.
Fintech advancements have increased opportunities for investors. In addition, development of robo-advisory services and analytics platforms provide them with ongoing advice on where to invest, how to invest and why.
Challenge? Retail investors currently have an excess of data that creates overload and confusion, making it difficult to discover value opportunities. As a founder, the probability that they may select your startup is not very high, so you need to be very convincing to make them select you
Limited tools
Second, if retail investors select to invest in startups, the tools to do so are still limited.
Investment platforms Such as Republic AND Founder or crowdfunding platforms comparable to Kickstarter Or Indiegogo are well-known and generally the first and hottest option.
However, more experienced investors know that these include the highest risk investment categories and rarely include more mature corporations. Another alternative are enterprise capital funds, although for now they only exist as legal instruments in the United Kingdom.
Additionally, tokenization is a relatively recent option. While many retail investors in addition to founders might not be familiar with it, tokenization has applications significant potential, as retail investors’ investments in digital assets are not particularly limited. Therefore, you can digitize shares of your organization using the blockchain protocol and offer them as tokens.
Lots of regulatory and other restrictions
Attracting retail investors to a private company has its limitations.
Regulations typically protect retail investors from dangerous investments comparable to startups. While developed markets comparable to the United States, Europe and Israel are moving toward expanding opportunities, restrictions are not expected to change dramatically in the near future.
The second limitation is the size of the check. Pursuant to applicable regulations, you can collect not more than 5 million dollars Or EUR through a crowdfunding platform. If you are a late-stage or capital-intensive startup, this is not a suitable option.
Retail investors are looking for narrative
Venture capitalists are more focused on numbers than ever before, in addition to requiring a minimum viable, viable product, a refined business model, a low burn rate, and good traction.
On the other hand, individual investors often listen to a fascinating story.
So be prepared to appeal not only to their minds, but also to their hearts, and most significantly, diversify your plans – people are different and will make decisions based on their values.
This is especially vital for Generation Z, which is steadily becoming an lively a part of the business community. Therefore, work on the image and emotional attractiveness of your organization.
Final thoughts
In a difficult enterprise capital landscape, individual investors offer an as-yet-untapped potential pool of capital, and tapping into it could transform the way startups raise funds.
Nevertheless, special attention ought to be paid to all the characteristics of the retail segment. Unlike conventional VCs or angels who invest in startups by occupation, retail investors have various factors influencing their decisions.
Additionally, expectations have to be reasonable. It is almost unattainable for a single retail investor to meet a VC’s expectations. By understanding its features, you can increase your probabilities of raising funds.