Types of Business Investors
Some types of business investors and examples that you should know:
Banks are a classic source for business loans, Inc. explain. Loan seekers will usually be asked to provide proof of collateral or streams of income before their loan application is approved. Because of this, banks are often a better choice for more established businesses.
Business Angel (Angel Investor) or Funding Investor
Angel investors are individuals with earned income that exceeds $200,000 or who have a net worth of more than US$1 million. They are found across all industries and are useful for entrepreneurs who are out of the early stages of financing but not yet ready to seek venture capital. Business Angel is someone who has funds given to a company to be used as initial capital for a business in exchange for shares from that company.
Peer-to-peer lenders are individuals or groups that offer funds to small business owners. To work with these investors, entrepreneurs must register with a company that specializes in peer-to-peer lending, for example such as Prosper or Lending Club. Once their application has been approved, lenders can then specify the businesses they wish to support.
Venture capitalist or Venture capital
Venture capitalists are only used after the business starts to show a significant amount of income. These investors are well known, as they usually invest large sums of money (often around US$10 million). They get most of their returns through “carried interest,” or a percentage received as compensation from hedge fund or private equity profits.
The ambition of most Venture Capital funds is to get a fairly fast return on investment, by selling back their shares to managers or third parties. Therefore they will make sure to support the development of the company, using their network for example. Be careful, however, that Venture Capital funds may find it more attractive to sell the company than to retain it. Since the manager is no longer the sole decision maker in his company, he sometimes has to meet the demands of investors and, in the worst case, is ready to part ways with his company.
Business owners often rely on family, friends, or close acquaintances to invest in their company, especially at the start. However, there are limits to how much of these people can invest in startups due to legal limitations. While it may be easy to convince a loved one to help, thorough documentation is highly recommended.
Private investors include real estate investment funds on behalf of individuals and a company formed to manage investment funds.
A Business Angel is a person who will decide to invest part of their financial assets in an innovative company with high potential. In addition, “business angels” generally go to great lengths to make their investment capital, skills and experience available to entrepreneurs.
Indeed, most “business angels” profiles are former business managers, entrepreneurs who have sold their businesses, or even family members looking to invest together in the same project.
A Business Angel generally has a portfolio of companies in which he invests that is smaller than the investment funds presented above. This means that he is closer, more personally invested in the company’s projects. Business Angel uses all the professional relationships he maintains (his former clients, partners and suppliers) to develop the companies in which he invests.
Business Angle can sometimes turn out to be more like a partner, a strategic advisor, than the casual investor. However, this type of investor sometimes has insufficient financial capacity to meet the needs of the company. His role will then enable a leverage effect over providing all the necessary financial resources.
This form of investment that you can evaluate is what I call a hybrid. For example, it could be real estate. You can choose where to buy it, you can decide how much to spend, you can decide what type of lease to apply, but there are always variables that are not up to you and your choices. Possible breakdowns, natural disasters, non-payment of fees, etc. Information and expertise should also be obtained here.
As the recent crisis has taught us, real estate has no value because it is immovable and that is it. You should know the market (residential or commercial), location, equal liquidation capabilities and average sales time, what is the market for demand for rent, etc.
Fundraising or crowdfunding
Through online platforms, crowdfunding makes it possible to finance creation or acquisition projects as well as business development. Most of the time, this method is used in addition to other means of financing such as honor loans or bank loans.
Venture Capital Funds, which can simply be translated as venture capital funds, are funds owned by one or more large groups. This fund aims to financially support start-ups by participating in raising their capital.
Crowdequity, or equity crowdfunding, is a form of crowdfunding that involves individuals raising their capital.
The operation of crowdequity is basically the same as traditional crowdfunding. It is a question of putting your business project on a dedicated platform and motivating crowds to invest in it.
The biggest downside to crowdequity is the large number of people pouring into the company capital, which can make rallying and voting much more complex than with a single external investor.