Raising funds can be frustrating when you don’t know who to turn to and which investor might help. Our quarterly report shows that 2023 started with more than a 70% drop in total funds raised. Understanding who to turn to can help maneuver the efforts better and channel them in a way that can increase the chances of signing with an investor.
In this article, we will explore, share tips, and show examples of the main types of investors that might invest in a start-up, ranging from early-stage to late-stage companies.
This is part two of an article series untangling the fascinating world of fundraising. This series will include guilds on dilution, funding rounds preparation, and a breakdown of types of funding rounds, investors, and more. Stay tuned.
You can find the first article in this series here - From Seed to Success.
Send me an angel
Angel investors are typically high-net-worth individuals who provide early-stage capital to start-ups in exchange for equity ownership. They have often experienced entrepreneurs themselves and are willing to take on higher risks for potentially higher returns. Angel investors are usually involved in the initial stages of a start-up's journey when the idea is still in the concept or prototype stage.
Angel investors provide not only capital but also mentorship and guidance to help the start-up grow. Good advice or counsel is sometimes worth more than just money so finding a decent investor is important but finding the right one is crucial.
A great example of an angel is the famous Peter Thiel. Thiel is a known angel investor in the startup world and made a good name for himself. Thiel is the co-founder of PayPal and an early investor in Facebook, he is also known for his contrarian views, and he's not afraid to make bold bets on young companies that others might view as too risky. For new startups, harnessing the knowledge, resources, and connections of such an investor can be a game changer that will take the company higher than any cash could.
Go on an ad-Venture
Venture capitalists (VCs) are professional investment firms that provide capital to start-ups in exchange for equity ownership. They typically invest in early-stage and growing start-ups with the potential for rapid growth and significant market share. VCs often have a more formalized investment process and may require a higher level of due diligence before investing. Their best feat is helping with networking opportunities to help the start-up scale and being introduced to other investors and providers.
One of the better-known VC firms is Sequoia Capital. With portfolio companies such as Apple, Cisco, Google, and PayPal no wonder they are considered a company that's making winning bets constantly. Done Valentine, Sequoia Capital founder once said "I like opportunities that are addressing markets so big that even the management team can’t get in its way." For startups aiming for VCs, we’ll suggest understanding who will you face and sharpening your message to what they like to hear. If you are looking for a way to wow them, we have an article exactly about that.
Good luck private!
Private equity firms invest in more mature start-ups or companies that have already achieved a significant level of growth and profitability. They typically invest in late-stage start-ups or companies that are looking for expansion capital, buyouts, or restructuring. Private equity firms may also provide operational expertise and management support to help optimize the company's control and financial performance.
Kohlberg Kravis Roberts & Co. (KKR & Co.) for example, is one of the largest players among the private equity firms. They never let the management keep on as they were - KKR & Co. openly changes the management structure and add counselors in each company to ensure things run as they want them to.
Become part of something big
Corporate venture capital refers to investment funds established by large corporations to invest in start-ups that align with their strategic goals. CVCs are typically interested in start-ups that can provide synergies with their existing businesses or help them stay ahead in the fast-changing business landscape. They may offer not only capital but also access to resources, markets, and distribution channels, as well as potential partnerships or acquisitions.
Join the family
Family offices are private investment firms that manage the wealth of wealthy families. They often invest in start-ups as part of their diversification strategy and to capture potential high returns. Family offices may have a long-term investment horizon and can provide patient capital to start-ups, allowing them to focus on long-term growth rather than short-term financial metrics.
Share the shares
Crowdfunding platforms allow a large number of individuals to invest small amounts of money in start-ups in exchange for equity or other forms of ownership. Crowdfunding has gained popularity recently as a way for early-stage start-ups to access capital from a broad base of investors. Its investors may be individual retail investors or just people interested in investing but don’t know in what. Their motivations for investing can vary from financial returns to supporting a particular cause or idea.
One of the most famous companies that saturated completely out of crowdfunding is Oculus Rift. When it was established back in 2012, Oculus founder Palmer Luckey managed to raise almost $2.5M out of crowdfunding, two years later, he sold the company to Facebook for 2 billion dollars. The better-known crowdfunding platforms are Indiegogo, SeedInvest Technology, Mightycause, StartEngine, GoFundMe, and Patreon.
IPO Investors
If you are looking for an IPO investor you are probably doing good. As a start-up progresses and achieves significant growth, it may consider going public through an initial public offering (IPO). IPO investors are typically institutional investors, such as mutual funds, pension funds, and hedge funds, as well as individual retail investors who buy shares of the company when it goes public. They usually are looking for publicly traded stocks that offer liquidity and potential for capital appreciation over the long term.
Conclusion
Navigating the world of fundraising can be challenging for entrepreneurs. It requires careful consideration of different types of investors that may be interested in supporting start-ups at various stages of their lifecycle. From angel investors who provide not only capital but also mentorship, to venture capitalists who offer networking opportunities, and even crowdfunding platforms that allow for broad-based investment, there are diverse options to explore.
It's important that entrepreneurs do their homework and carefully assess which type of investor aligns best with their goals and growth trajectory. A good fit with an investor can not only provide capital but also valuable resources, expertise, and strategic partnerships that can propel the start-up toward success.
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altshare is a leading, fast-growing Equity Management & Compensation Plans Administration solutions provider. We love challenges. We are obsessed with our clients. We are on a mission to redefine the way founders do equity. All our products & services are supported through the altshare Platform - the only equity management platform built for entrepreneurs.
