Get to Know Your Startup Investor
We’ve heard about startup investments here and there as business idea after business idea comes to life. If you’re relatively new to the startup industry looking to find funding for your pitch but are a bit confused by the different types of investors and which may be a good match for you, well, you’ve come to the right place. Here we made a quick explanation of the different types of investors to fundraise from that don’t need to be paid back to help you jumpstart your startup!
Friends & Family
The first type of investor that entrepreneurs have access to is their family or friends. Now, you probably think getting on their good side will be enough to convince them to lend you a hand since, well, you know them personally. I hate to break it to you, but it’s money we’re talking about, so although past familiarity and a sense of intimacy are present, you still need to do some convincing to make them trust both you and your business idea. Other than that, it’s relatively more laid back than other early-stage options, though there is indeed a downside to committing to this.
Mixing business with family can be tricky and risky in the sense that it can create unrealistic expectations and spur disputes and misunderstandings among family members or your group of friends at some point. It can hurt your relationships with them when things go south, if the business doesn’t take off as both parties anticipated, or if any of you suddenly had a change of heart and goes opposite the company's initial agreement or original vision. Fortunately, this downside can be avoided or prevented from becoming a big deal if you remain transparent during the process. This will help you avoid future conflicts and keep agreements from becoming blurry.
The bottom line for this option is that if you think family and friendship ties cannot withstand the pressure of bringing business into the mix, you may be well off considering other options below.
What they are looking for: Close personal connection and viability of the business plan
The most commonly heard type of investor is the venture capitalist (VC). This investor type is an organization of startup veterans experienced enough to identify promising investments. Organizations like this are capable of and are dedicated to investing millions of dollars or capital and mentorship in startups that have a high chance to execute and generate returns, ventures that have started generating serious revenue, or those en route to an IPO or major acquisition.
Aside from the capital it can provide, VCs also have the power to increase a startup company’s credibility and visibility.
What they are looking for: The founder’s leadership skills, the competitive landscape, and a high tendency to have a high return of profit
Corporate Venture Capital
There are also departments formed within large companies that operate the same way as VCs. The only difference is that corporate VCs are attached to large companies and conglomerates and are inclined to focus on investing capital funds into startups that may prove beneficial to the parent company and its ecosystem in the future.
What they are looking for: Disruptive idea, tech, or product to help diversify the conglomerate’s portfolio, and entry to new markets
Angel investors are ultra-high net worth individuals or professionals focused on financing small business ventures and helping startups grow in the initial stages using their personal funds. They offer more favorable terms compared to others and are more concerned with the commitment and passion of the founders to the company or the vision; therefore, they come in with varying motives, such as personal interest in the problem you intend to address, the product you are proposing, or you or the people in charge.
Some may opt not to get involved past investing, making it a one-time off funding. However, there are angel investors who actively participate in the company by serving as mentors and advisors to offer their wisdom and expertise in a certain field. There are also those who may not specialize in the startup’s industry but are very equipped with professional connections that can come in handy for any company in its early stage.
What they are looking for: Viability of the business plan, a unique and innovative offering, and the passion and commitment of the founder
Incubators & Accelerators
Both accelerators and incubators can offer you much-needed support for your startup, although in different ways.
While incubators offer minimal capital compared to other investors on this list, they provide guidance to new entrepreneurs from the very early stage throughout the development of their business (basically in an open-ended duration) and give them the tools and advice they need to succeed, like consultations, facilities or physical space, mentorship, and training. Their purpose is not to push a startup towards rapid growth but rather to nurture it and help entrepreneurs polish their business models.
On the other hand, although offering mentorship, startup accelerators differ from incubators as they provide funding that covers the expenses of an early-stage business ready to scale. And if incubators don’t require equity, accelerators do take a portion of equity in return.
What they are looking for: A great idea or a solid business pitch
Crowdfunding has recently been the most common method for startups and small businesses to get started in recent years. It refers to the digital way of raising funds through online fundraising programs where strangers can make small individual investments to push a project or business closer to its launch. Various platforms that connect thousands of startups looking for capital with potential investors are available online, such as Kickstarter and GoFundMe. This option works best for business ideas that carry the potential of going viral.
What they are looking for: Virality of a project or business idea
We’ve reached the end, but this is just the tip of the iceberg. There are still plenty of options out there, such as funding from, say, banks and financial institutions, private equity fundings, and even family offices. But we hope that this list served as a good first step to get to know your potential or target investors, especially for entrepreneurs who are barely out of the starting line.
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