Understanding Startup Investors
Startup investment is a topic that gets quite some attention in today’s media. Likely you’ve heard a lot about startup investment — but what types of startup investors are actually out there? And, what type would be a good match for your startup? In this article the different types of investors that are of interest to early stage startups are explained — together with the challenges in dealing with them.
Different types of investors
For early stage startups there are four types of investors that are of interest:
- Angels (“casual”)
- Angels (“amateur”)
- Angels (“professional”)
- Venture Funds
We’ve divided up the angel investors into three different groups. It’s very important to understand that there are different types of angel investors and that they have different motivations.
Angels (“Casual”)
“Causal” angel investors invest anywhere between £100 to £2,000. These are people that don’t really have a strategy for their investments. Often they just see something (like a crowdfunding website) or hear about something and then decide to invest. They are not very serious investors, but simply invest for a little bit of fun from time to time.
As a startup it’s not recommended to work with “casual” angel investors. The first reason is that these types of investors do not bring very much to the table in terms of expertise and network — they only bring money. The second reason is that these investors do not know how to value your company correctly. This creates problems later on, as it holds back other investors to invest in you in later stages. It’s recommend to avoid “casual” angel investors.
Angels (“Amateur”)
Individuals that we group under “amateur” angels invest somewhere around £7,500 to £35,000. Typically these individuals do around 5 to 10 investment per year. It’s their personal money and most of the time they invest together with other angels. Amateur angel investors are (often) quite selective in what they invest in. As a result they most likely invest in businesses in industries that they are comfortable with. The reason why amateur angels co-invest with other angels is that they know they have limited expertise in some areas, but have people in their network that have the required expertise for the venture to succeed.
The challenge in dealing with “amateur” angel investors is that they can be selective with who they deal with. Getting them interested in your team and company is the challenge. For early stage startups, “amateur” angels that have expertise in a specific industry could be a good match.
Angels (“professionals”)
Individuals grouped under “professional” angels would put in something between £25,000 to £150,000 per investment. Often professional angels are people who look for really big opportunities + a strong team. They almost never invest on their own, they co-invest or lead the investment round so other angels and Venture Funds can join.
Professional angels are generally harder to find. They do prove to be a good match for early stage startups.
Venture Funds
Venture Funds invest anywhere between £100.000 to £1.5m in early stage companies. This is money from other people. Venture Funds operate by taking money from pension funds and wealthy individuals and invest it in businesses that match their portfolio.
For early stage startups, Venture Funds are relevant, but the challenge is that these Venture Funds have investment criteria that often can’t be met (at this time) by the startup.
So, what should you focus on as a startup?
It really depends on your venture and your objectives. Generally, if you are an early stage startup looking to raise investment, an “amateur” or “professional” angel with relevant industry knowledge would be a good match. Venture Funds are a good option as well, depending on whether you meet their investment criteria.
Getting Startup Investment
Many startups do not get any startup investment and as a result struggle to scale their product. These startups fail to use specific strategies that that will ensure they get the attention of investors and stand out from the crowd. They struggle to understand the investors’ motivations to invest, and as a result waste valuable time.
The Serial Entrepreneurs have developed a free course by Philip Wilkinson. Philip is a serial entrepreneur and investor, who has built and sold 4 business to the likes of TIMEOUT, CAFEDIRECT and YAHOO. He is a Venture Partner at Entrepreneur First where he mentors founders from idea to multi-million exists.
In this free course the exact steps and strategies that successful serial entrepreneurs use in securing their investment will be explained.
Free Course — 5 Mistakes 1st-Time Entrepreneurs Make Whilst Fundraising
Who Are The Serial Entrepreneurs?
Free eBook “How to Make the Leap and Build Your First Startup”
