Wfund Wisdom #11

Investment Explained

Investment is crucial when starting up a business, however you may have heard different terms thrown around and wonder what on earth the difference is. If you’re not sure what kinds of investment opportunities there are out there or want to know which kind is best for you, then read on!

Angel Investor
No, they don’t have wings but they CAN provide you with some capital! We guess that’s kind of angelic, right?! These types of investor (that are also known as a business angel, private investor or seed investor) is an individual who usually uses their own funds to invest into a startup or business. Because of this, they tend to invest in small or very early-stage companies (as not as much money is needed in these early stages).

Angels invest in exchange for equity ownership and might be a member of the family or a friend. It might even be a retired entrepreneur who wants to invest simply to help you out because they’re still interested in the business world and want to use their experiences to help those that need it - so in these cases you might not only get funding but also mentoring and support which can be super useful when you’re just starting out in the entrepreneurial world. There are also large networks of angels that work together to invest in businesses and of course then, have a larger pool of funds to use. Checking out organisations such as The European Trade Association for Business Angels or this Angel list could be very beneficial for you if you‘re in need of some funding to get the ball rolling!

An Angel investment can help your business get moving in those important early stages, and if advice and support is thrown in too, then it’s a good way to go for you and your business 👼

Crowdfunding
Are you envisioning a large group of people just throwing money at you? You wouldn’t be far off! Crowdfunding involves funding a project by raising contributions from a large number of people, usually through a website built for this purpose. There have now been billions of euros raised around the world using this method. It is especially useful for new entrepreneurial ventures to try, especially for any social entrepreneurship projects as people are usually happy to invest in things they know will make a difference. Though, that doesn’t mean other areas don’t get funded, such as artistic/creative projects, travel expenses etc.

People can contribute as little or as much as they want, resulting in a large amount of money (or reaching whatever target you require) to help finance your new business venture. This is made even easier now by spreading those crowdfunding websites on social media, growing your reach. It’s a great way to raise funds especially for any new entrepreneur and gives you a chance to get quite a bit of money (if people believe in your idea) and get your product out there for heaps of investors to see. Some big crowdfunding sites are Kickstarter who claim that “ over 10 million people, from every continent on earth, have backed a Kickstarter project” and Indiegogo who claim that “over 1 billion dollars has been raised across all projects, from dance to design”.

Seed Money
Wouldn’t it be nice if you could plant a seed and watch it turn into money? 🌱Well, that’s not quite how it works! Seed money or seed capital is quite similar to Angel funding, where an investor invests capital in exchange for a stake in the company. The term seed means it’s a very early investment to help the business along until it can make more money and manage by itself or until it gets more investment. Like Angels, it might be family or friends that invest the money, or investors can be the founders themselves using their own savings.

Because early-stage ideas and businesses can be risky, larger VC’s or banks might not want to invest their money, that’s why the seed money-round is managed by friends, family or the investor themselves. When the business looks a bit ‘safer’ and stable, this is when the founder might be able to secure some larger funds from elsewhere.

Venture Capital
Venture capital (VC) is a type of financing that investors provide to startups or businesses that they deem to have some potential for growth and that they might make their investment back on. They invest in exchange for equity or an ownership stake in the business - this can mean that sometimes they might want some say in how things are done, as they are risking a lot by investing their money.

Founders might go to an investor after the first seed money or Angel round. This first round of venture capital is also known as the series A round, which means that the investor provides the business with funding in the hope of getting money back once the company ‘exits’ - when the company starts to sell shares to the public for example. That’s why investors tend to finance projects they believe will do well, so that they will get some or all of their investment back eventually. It’s also why they tend to invest more in tech startups or something that has the potential to do very well, rather than more risky ventures.

This is why PITCHING is SO important! You need to convince that investor that your idea IS worth investing in, so make the best pitch deck you can! Show them that your idea has the potential to grow/scale and that it is something that’s needed in the market and they won’t be able to resist (hopefully).

We hope this has cleared things up a bit for you! Of course, if you have any questions or want to know more about what type of funding and support we can offer you, get in touch! Write to us at: inspire@wfund.vc and let us know, also if there’s something else you’d like us to write about we’d be happy to hear it!

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