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HomeFinance and AccountingBusiness Investment3 Types of Investors You Want for a Startup

3 Types of Investors You Want for a Startup

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Starting a business is never easy. From paperwork to finances, there are a lot of things that must be done before you can even start. However, funding is among the first things you must consider.

How much does a business need to get started, and how exactly does a startup get funded? If you think about it, there are a lot of business loans out there that you can use to build your business. However, if you don’t like to get your finances from banks and the like, you can get them from other online lenders or investors.

There are various types of investors, and each one has the same goal: to assist a business in getting off the ground and running. What’s great about these investors is that they not only give you money for your business, but they also give you advice on how to run it more efficiently. Here are some investors that you should know about if you’re planning a startup.

Angel Investors

An angel investor, also known as a seed funder or simply an angel, is a high net-worth individual willing to help an entrepreneur fund their business idea. It’s typically in exchange for a portion of the equity of the business. This investor can be anyone who has money to assist your business, and they are often found among friends and family members.

These types of investments are considered risky for an angel investor; therefore, such investments only equate to just 10% of their portfolio. Angel investors have excess funds they can use for other things, and many of them choose to fund a small business idea to get off the ground or help a startup with its first steps.

Why do they do it? 

They mostly hunt for promising entrepreneurs rather than business ideas. You’ll generally see them focus on the entrepreneur and their business rather than future profits. To find an angel investor, you can look at crowdfunding sites.

Venture Capitalists

Venture capitalists are a group of people who have formed a private equity fund that they can use to finance startups. They usually back startups that have long-term high-growth potential in the market. Venture capitalists are often high-net-worth investors, corporations, and financial institutions. One thing about venture capitalists is that they don’t only offer monetary funding but also managerial expertise, location, and equipment.

Although this type of investment is risky for them, they usually do it for the value and profit the business will have in the future, which is why, as mentioned earlier, they only back startups with huge potential in the future.

In a typical deal between a startup and a venture capitalist, assistance will be given in various forms, which we talked about just now, in exchange for significant equity. These chunks are created and sold to various limited partnerships that venture capital has.

Consider the distinction between venture capital and private equity. In that instance, the latter prefers to aid businesses that are already established, profitable and looking for an equity infusion to gain ownership stakes. The former, on the other hand, concentrates on assisting smaller startups.

Peer-to-Peer Lending

Peer-to-peer lending is typically found on the internet, and there are a lot of sites that offer this kind of service. It works like a marketplace where the service connects investors looking to fund something and people who want to get a loan online. It allows them to deal without bearing the burden of paperwork and lengthy approval times.

If you’re looking to fund your startup, you can create an account and state your business idea and other aspects on such a site. Investors will then assess your proposal and determine whether or not to lend you money. 

Final Words

Funding a business is hard. However, you can always use various loan or funding options available in the market. Remember that investors offer help in exchange for some aspects of your business, especially equity. We suggest you research properly and find the best one for your idea.

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