7 Different Types of Investors for Startup Companies
There are many investors right now who would jump at the opportunity to fund your startup. As long as you can convince them your business has potential, you won’t have to beg them into investing in it. What you need, however, is to establish which type of investor is the best match for your business.
Below are the seven different types of investors for startups:
Type #1: Family and Friends
When looking to fund a startup, your first port-of-call is your family and friends. These types of investors are people who know you and genuinely want you to succeed. As a startup, you have little in terms of evidence or proof that your business is worth banking on. Besides the fact that they are glad to invest in your venture, what friends and family members are basing their decision on is you.
Since they know you, trust you, and believe in you, they are not worried about casting their lot with you. While a family or friend investor may not invest a lot of money into your business, the $1,000 could be just what your business needs to enter into the big league, or at least stay afloat in tough times.
Type #2: Incubators and Accelerators
Incubators and accelerators are gaining in popularity. While acceptance to these programs is very competitive, should your business idea be accepted, you can get between $10,000 and $120,000 in seed capital to grow your business. You also get to benefit from resources and critical knowledge provided by the incubator or accelerator.
Once your business gains traction and enters profit territory, you will then be able to brush up your pitch decks and start pitching to high net-worth investors. However, you must be prepared to put in the work as incubators are keen to see your business evolve into the next stage as quickly as possible. These types of investors are particularly common in the tech sector, especially among AI companies in Canada and North America.
Type #3: Venture Capitalists (VCs)
As an entrepreneur seeking to raise funds, a venture capitalist firm is your dream investor. These types of investors can write you the big cheques. They also have influence and power to help you succeed and expand your market share. Besides, they come with visibility and credibility, which is what every startup is looking for.
While hunting for a venture capitalist firm, it’s critical to look for one that’s best suited for your business. Their expertise and interest in your business are critical attributes, so is their timeline of funds injection. Consider their influence and power to leverage on in the next stage of your company’s growth.
Type #4: Angel Investors
This type of investor is willing to take a chance on a startup. They have the cash to spare and are looking for a higher return on their investment that only a startup can promise. As long as you can promise a 25% or more ROI, you are likely to find the right angel investor for your business.
In other cases, an angel investor will ask for equity from your company in exchange for funding. For a startup, equity financing is an attractive proposition, which is what makes angel investors ideal. You can approach an angel investor at a live pitch event, via an introduction from other startup founders, or online.
Type #5: Angel Groups
Angel groups involve different investors coming together to fund startups. They are more organized and are becoming extremely popular with startups. Since the risk is spread across the group, they invest with confidence and can negotiate for a higher ROI.
Type #6: Government Programs and Banks
In most cases, traditional lenders won’t touch a startup. These types of investors have seen too many of them fail. With statistics putting the number of startups that fail at 90%, you can’t fault them.
Luckily, there are government facilities your startup can take advantage of. While government loans still need to be repaid, you won’t have to give up equity in your company. However, they could be the shot-in-the-arm your business needs to start attracting the attention of other investors. The thing to think about before taking a government loan is that it comes with some limitations and restrictions, some of which may not favour your startup.
Type #7: Corporate Investors
Like angel investors, big corporations are also seeking the best ROI. The benefit of working with corporate investors, however, is that they have extra funds to invest in startups with the greatest promise. Some of them have their incubator and accelerator programs. They have the right mix of solutions, besides funding, to give your startup a real shot at success.
If you are looking for allies to scale up your business, corporate investors fit the bill. They bring different perspectives and styles of running a successful business. However, lines of engagement with them could be a bit blurred. So, you must agree on boundaries before entering into this financing arrangement, which must be beneficial to both parties.
This list is a capsule of the many types of investors willing to take a chance on your startup. They range from family and friends to individuals and corporations with varying levels of risk appetite. The best fit depends on what your business is about and what you are looking for in an investor. Happy hunting!
