8 Different types of investors for Startups
Many times, people come up with great ideas to start a new business but after a few days, they feel that they should find and attract investors. Just coming up with a solution or idea is not enough, you need capital to run your idea and start basic operations of the business. As a startup founder, you will have to learn the art of attracting investors and find the one who trusts in your idea. I have seen several startups struggling in finding investors, they even don’t know what types of investors are there and at what stage they should reach out to a specific type of investor. Since I have worked with several startups and investors, so I thought I will compose my knowledge in this article to help other startup founders.
Friends & Family, Personal Savings
This type of investor is very helpful for the initial stage. Your family members, relatives, friends, or colleagues may give you the initial money that you need to start the business. These investors are easy to convince since they already know you. However, they may not be able to provide you a lot of money, maybe around $20K or so. Many times they can give you money without any equity. If you have to give equity for this money, you have to be very careful. You should make sure you have some sort of written agreement that describes what value they will get if your startup becomes popular. You should be careful about mixing business with family/friend, if things don’t go well, it can affect your business and relationship.
Pitching competition is an opportunity to present your business idea in front of investors and corporate partners at a scheduled event. You can represent your company in pitching competition and get investment into your business. You should find nearby pitching competition events and apply them to join the event. Several organizations organize startup pitching competitions every year and they offer free entry or paid entry at a nominal cost for a startup to present their idea. A Pitch with a clear business plan will help you to win the competition and get possible investment, media exposure as well as a potential strategic partnership. There are so many startup competitions is scheduled in 2019 to join. Some of them are below:
- Code Launch in August 2019: Apply in between 1st March to 31st May
- Postcode Lottery Green Challenge in September 2019: Apply in between 1st March to 31st May
- SevenVentures Pitch Day 2019: Event will be held in between May to September
- Startup World Cup 2019: 17th May 2019
Crowdfunding Platform – kickstarter, Indigogo, Gofundme
Crowdfunding is an innovative way to raise the fund online. You can join the online community like Kickstarter, Indigogo, or GoFundMe, and create your fundraising program. Crowdfunding can be a loan, contribution, or investment from more than one person at the same time. If you are a startup business or independent entrepreneur, you can put a detailed description of your business or idea on these platforms to start your campaign. Several idea inventors work with Simpalm, an app development company for startups and build digital products to demonstrate projects on these platforms and raise funds.
You should be putting business goals, how much fund you need, plans and profit to attract investors. People generally come to this platform to know about new startup and their needs. If they like the idea then they can make an online pledge with the promise of pre-buying the product or as a donation. The benefit of these platforms is anyone who believes in your idea can help you in collecting funds for the business.
An incubator is a type of Investment Company that helps new and startups to develop in an early stage. This type of company provides office spaces and management training to run business operations. There are different types of incubators categorized by NBIA: Academic institutions, Non-profit development corporations, venture capital firms, For-profit property development ventures; and a combination of the above.
While on the other side, Startup accelerators support early-stage, growth-driven companies through education, mentorship, and financing. Startups enter accelerators for a fixed period of time, and as part of a cohort of companies. Accelerator programs provide intense, rapid and immersive education to young innovative companies. They help in getting years worth of learning in just a few months of collaboration.
Seed investors are those types of investors who provide a small number of funds needed by a business to get started. Business or startup idea at concept state need a small capital to cover their initial expenses. Seed money can be collected through friends, family or smaller angel investors since it is high-risk investments and the chance of getting failures. Seed investors provide capital either in the form of a loan or in return for equity in the company. They often enjoy a hands-on role in developing a company from scratch by providing meaningful decisions and handling operations.
Angel investors are generally wealthy entrepreneurs who want to leverage their wealth by investing in innovative projects started by young entrepreneurs and founders across the globe. This type of investor is passionate about new ideas, people and especially startups that have difficulty in getting funds. Many angel investors are successful entrepreneurs themselves, as well as corporate leaders and business professionals.
Angel investors always try to find something revolutionary and that’s is like “hit it big” as the next Google or Yahoo. Basically, Angel Investors can invest in start-ups in two ways, either one-time investment or over a period of time. Angel Investors may ask you for a share in return for their investment, but many times, they’re not interested in that. They just wanted to make a nice return on their investment.
Venture Capitalist: (VCs, Venture Debt)
Venture capitalists are highly professional individuals or firms that provide funds to small, early-stage, or emerging startups who are deemed to have high growth potential. Venture capitalists generally invest in only 1 out of 100 deals if you compared to angel investors. VCs typically work with companies that have a solid business plan and have a display of proven success in their business. A solid business plan and high-profit return will definitely attract VC. VCs rarely invest in startups perceived as risky or less profitable.
If you are looking for large investment than approaching VCs can be beneficial but you should also know that they need partial ownership or share in the company and expect a high profit of the investment. Venture capitalists seek a position in your company board and give management decisions. You’ll also likely pay a higher ROI to this investor than the cost of interest on a traditional business loan. You should consider establishing a partnership agreement that indicates the rights and expectations of each party. While venture capitalists sometimes act in a mentorship role, they are usually more active in operations.
Private equity firms or Angel investors or VCs generally made private equity investments. This type of investment funds generally organized as a limited partnership and its basis is a direct investment into a firm to gain a significant level of influence over the firm’s operations. Investors provide working capital for new product development or restructuring of the company’s operations or ownership. Private equity has gained a significant amount of influence these days in the marketplace.
Also, don’t forget to visit our other blog on how to find investors for my startup.