3 TYPES OF INVESTORS YOU HAVE TO LOOK INTO FOR A STARTUP

New entrepreneurs would often opt to bootstrap their way into making the new business ideas work. For the most part, that’s the best way to finance your capital. With this method, you’ll owe no one your future profits or equity down the line. 

However, that’s not possible for most of us because starting a business is very expensive. Some of us don’t even want to consider a business loan because of how expensive it is and for fear of losing a considerable part of the business because of the loan payments.

If you’re okay with giving a little of your business’ equity in exchange for funding, looking for investors might be your best bet. Thankfully, there are several types of investors you can look into for financing, and of course, they have their requirements for the deal. Here are some of them.

Angel investors are wealthy private investors looking to finance a startup in exchange for equity. Unlike venture capitalists who use pooled investment funds to help you finance your business, angel investors finance your startup with their own money. 

Also, they are more patient with their partners and are more open to opening a financing system that the entrepreneur can borrow from for an extended period. Sounds good all the way, don’t they? Well, they are called angels for a reason.

Angel investors come out as advantageous mainly because they focus on the entrepreneur most of the time instead of the potential profit. You can find angel investors among friends and family or business connections. But of course, they are not without a disadvantage. 

The main one is that they will be asking for equity, usually between 10-50%. This means that if they deem you unnecessary for the company or that you’re holding it back from developing, then based on how much equity they have, they can push you out of the company. It’s just the way most companies work anyway.

Venture capital is a form of private equity that investors pool together to finance entrepreneurs and small businesses that they believe have a potential aggressive growth shortly. 

Venture capitals are often made up of wealthy investors, investment banks, and even private institutions. A huge chunk of equity will be offered to the venture capitalists in exchange for financing in a venture capital deal. However, it’s not exclusively just financing as it can also be in the form of managerial expertise, equipment, etc.

A critical difference from private equity funds is that the latter provides financing for businesses already established and have a good income source. They typically do this for a chance to buy more stocks from the company to gain a vast deal of equity to take over the whole business. On the other hand, angel investors are more interested in financing small startups that want to take their business idea further.

Business incubators are programs specifically designed to help startups innovate and grow both short and long term. Usually, suppose a business participates in this kind of program. In that case, they will be offered mentorship, workspaces, and education, and when they finish the program, they will be given access to investors. 

These resources will help the business take shape while operating in a very low-cost way in the incubation program. Of course, for you to be able to participate, you’ll need to find a business incubator program and register.

If you’ve heard of accelerators before, you might wonder how they differ from business incubators. Business incubators follow a less rigid schedule and are often more customizable to suit your business needs. You can think of these programs as some residencies with the benefit of offering educational programming and additional resources. 

The best part about business incubators is that they can be tailored to the business type and model. Generally, since business incubators don’t follow a specific schedule, your business can stay in an incubator as long as it needs.

Another thing that they can offer you is financing. They can give you access to venture capitalists if you’re looking for further financing for your startup. Often, venture capitalists are impressed by being in an incubator, as that means that as an entrepreneur, you have the skills and drive to take your business to the next level. 

Also, business incubators will let you collaborate with other business owners. This can allow you to brainstorm and form a business team to grow together.

Typically, non-profit organizations and private entities offer business incubators. If you are looking for how to get free stuff from the government, you should know that some government agencies also offer business incubators to stimulate the economy.

Investors are your main lifeline if you don’t have the money to finance your own business and get a business loan. Of course, even though they are good on paper, they still require something in exchange for their help in financing and other things. However, as long as you manage your startup and keep it developing, they can really be of good help.