Types Of Investors For Startup Companies

Investors are unique players in the growth process of a business. The level and quality of their involvement can ultimately help determine a company’s success or failure. It is imperative for budding entrepreneurs to take the time to learn about the types of investors available and how to use best practices when approaching them for funds.

Many entrepreneurs entering the business for the first time expect to spend about four to six months raising the necessary startup funds. The main reason behind this is that not everyone knows everything about funding off the bat, and the different types of investors and startup funding.

Angel investors

Angel investors put their money into small startups or new entrepreneurs. These are the most common type of investors that most people may have heard about. An angel investor might even be a close associate of the startup owner or a friend/family member.

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Angel investment is normally either a one-time funding for the business to propel or an ongoing investment to support and take the company forward in the initial stages. Angel investors usually offer much more favorable terms than other investors. The reason is that angel investors invest in the entrepreneur opening a business, not the company’s viability.

In short, angel investors always focus on helping startups grow in the initial stages instead of obtaining a profit from it. As a matter of fact, angel investors are also referred to as business angels, seed investors, private investors, angel funders, or information investors.

Personal Investor

Most company entrepreneurs rely on intimate acquaintances, relatives, or family to assist them in investing in their firm, generally in the early stages. Personal investors are these sorts of investors, and while they can help with finance, there is a limit to how much they can invest in your firm.

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It is typically simpler to persuade a loved one to assist you, but in this case, a lot of documentation is necessary, and they may be taxed for their assistance. So, if you are going to seek the assistance of a personal investor, be sure to consult a lawyer to prevent any issues.

Family office and corporate investors

Some enterprises go for the family office route to raise money. A family office is basically the investment arm of the founders of any successful enterprise. Like anyone else, family offices invest in start-ups to diversify their investments. If the start-up is doing well in a particular sector, it may attract funds from a “corporate investor” in that sector. Corporate investors are essentially companies. From time to time, they pick up stakes in or acquire other companies to grow. These investors can be great allies in terms of market access opportunities.

Banks

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A bank loan may be available to help you with startup costs. A bank will want a detailed business plan and a thorough description of your business and its prospects. A business proposal document also states the product or services being offered, your financial and management projections, and how you plan to implement your goals. It’s easiest to get a loan when you go to a bank with which you already have a relationship. Be prepared to prove financial responsibility and wait for the time it may take to process the loan.