Different Types of Investors For Your Startup Needs
Keep this point in mind that not all of these options are viable at every stage of funding.
FRIENDS AND FAMILY
Starting off with an option that might be perfect for solving your short-term capital requirements. This has another advantage as well, you probably won’t have to give up equity in your company. This further leads to a morale boost in your idea.
The reason why you should prefer to go for this before reaching out to any investor is because this will give you a chance to actually build something which you can show to a potential investor. Remember that investors will be more inclined to give you money when you have some kind of a prototype or product.
FINANCIAL INSTITUTIONS AND BANKS
In recent times banks have become more open towards the idea of lending money to startups and young businesses. Now if you are approaching a bank during the beginning of your startup journey they probably won’t lend as much as an angel investor would. This is due to banks wanting to minimize their exposure. This is also because you don’t have any proof of revenue stream yet.
But still a lot of people prefer to go to banks in the beginning as it will not dilute their share in the company. Banks are not looking for equity in your company and therefore you are not losing any decision-making power.
GOVERNMENT
This might seem like an off inclusion in this list but hang on a minute. The government has been pushing the culture of entrepreneurs for a long time and especially since the boom of the digital age. This is also done when a particular market gets too monopolized and there is a need to disrupt that sector.
To do this government ensues different schemes such as tax breaks etc. but along with this they also offer grants with no strings attached in terms of equity. The only drawback here is that these grants are only available for some specific sectors which the government wishes to support.
ANGEL INVESTORS AND ANGEL GROUPS
Angel investors are one of the more well-known sources of funding. They are usually people who are not afraid of exposure and risk. They want to get in on a startup in its early life for the possibility of getting profit later on. The disadvantage of going for this option is giving up equity. This is how they make up for taking such a risk, by owning part of your company.
Angel groups are basically a group of angel investors who decide to come together and invest in startups. This leads to less exposure to individuals and less financial burden on them as well.
STARTUP ACCELERATORS
Consider these like angel investors but along with the seed funding you are also receiving mentorship, access to networking and sometimes even infrastructure. These are for profit organizations just like angel investors.
VENTURE CAPITALISTS
This route usually comes once the initial seed funding has already taken place. An interesting statistic is that only about 1% of startups actually end up getting capital from VCs. This is because VCs are more thorough with their checks and they are looking for a proof of concept along with some kind of revenue stream from the startup.
CROWDFUNDING
This might be the newest option here. As the name suggests, you are seeking capital from people from all parts of the world. There are websites like Kickstarter where people post about their business ideas.
You don’t even have to give up any equity. People are giving you money because they like the idea plus they get some sort of a benefit. These benefits can include free products, early access to products etc.