Types of Investors

Small Business Forums Accounting and Finance Types of Investors

  • Post
    Kevin Garnet
    Participant

    For people who are starting out a big question they always ask is: What are investors? Are there different types? What should I know when I’m looking for one?
    So we are going to go over quickly 5 different types of investors you may want to look for when you’re starting a business.

    Banks
    Are are the classic type of investor and one of the first sources business will look to when they are trying to obtain a loan. When it comes to banks they are looking for some time of collateral proof or a type of revenue that the bank can see before they approve an application. Banks are a great source but normally only after you are a more well established business. If you have that in place then landing a loan will be a simpler process.

    Peer to Peer Lenders
    Now Peer to Peer lending allows individuals to get loans directly from other individuals. This basically cuts out the middle man of the financial institution. This can also be called social lending or crowdlending. There are sites you can look at specifically that will get you set up with this. Common ones are: Upstart, funding Circle, Prosper Marketplace & Peerform. Now it is important to check the fees associated with this kind of lending because sometimes it can be quite high.

    Angel Investors
    Now angel investors are normally people or a person who wants to invest in a new or small growing business providing the startup capital that is needed. They are normally people who have the extra funding and are looking for a higher rate of return then from traditional investments. Most of the time these investors are looking for a return of about 25% or more. These are a form of equity financiers who basically help with funding for exchange of an equity position in the company.

    Venture Capitalists
    These are private equity investors, much like angel investors, who provide capitol in companies that are showing signs of large growth potential. They look at the companies that want to expand but may not have the means to do it on their own. They make money normally from the interest on their funds return called “carried interest”.

    Venture Capitalists
    Now sometimes these are the easiest and hardest to get. These lenders are family, friends or clow acquaintances who help to invest in your company. There is a limit to how much these people can lend unless you have some very wealthy connections. Make sure to get thorough documentations in case it come back later on that they want a stake in your company.

    Now each of those type of investing options have their perks and downfalls. It is up to you to decide which works best for your company.

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    Alice Fowler
    Participant

    Is there a special avenue one must follow to get an angel investor?

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