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Understanding the Different Types of Investors

Date: 02/26/16 By: PlanIt Business Team

When you have a dream for starting a business, all your amazing ideas won’t quite be enough to get it off the ground. Simply put, you need money. And oftentimes, that means finding types of investors that believe in you enough to put cash into your company on the premise that it’ll grow into a stunning success.

If you’re just now making this foray into the world of entrepreneurship, consider this your field guide for the types of investors you’re likely to encounter. With knowledge on your side, you’ll be better equipped to present your business in a way that appeals to each one.    

Angel Investors

Angel investors are typically high net worth individuals or groups of investors who invest their own money (typically $25,000 to $100,000) into budding companies with strong potential, often in exchange for equity ownership interest. In many cases they have experience being an entrepreneur themselves and take on a personal interest in the success of the company, which can manifest itself through the adoption of a mentoring role.

One important aspect of working with angels is knowing that they’re regulated. They must meet income and/or wealth requirements set forth by the SEC in order to invest in businesses like yours.

Venture Capitalists

These are funding organizations that typically wait until a company has begun to prove itself before investing money. They often take a company from early market entry through rapid growth up to the point where they either go public or are acquired, at which point they get their return.

While venture capitalists also offer larger deals in the millions, they’ll also usually expect to have partial ownership and a board of directors seat so they can have their say in decisions.

Banks

Much like other investors, banks will want to see a detailed business plan and ask you questions about the company you’re trying to build. Their financing will come in the form of a loan that must be paid back, although you could qualify for a Small Business Administration backed loan, which is guaranteed to be paid back.  

Friends, Family, Colleagues


The people who know you best will be your strongest source of support when all you have to get investors interested is a unique idea. Your friends, family, and colleagues will likely be the first people to put money toward your business because they’re not really investing in your vision. They’re investing in you.

Every time you get to meet and present to investors is a valuable chance to show off the potential of your business idea, so it’s important to make sure that no opportunity is wasted. By taking the time to learn about how different types of investors work, your chances for success in funding your business are sure to increase.

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