The 6 Types of Startup Investors

There comes a point in any entrepreneurs life where he or she has to consider whether they should raise funding for their startup. The usual suspects include raising funds from angel investors or pitching to VCs, although these options can be out of reach for many, especially startups that are in the pre-product market fit and pre-revenue phase.

Luckily, there are other sources of funding worth considering, especially when you aren’t yet ready to raise an equity round. Check out a brief list of the main types of investors and sources of fundings entrepreneurs can turn to.

Accelerators (& Incubators)

When you’re first starting off, this is often the first type of funding startups receive to get started. Funding for accelerators, incubators, and competitions tend to be on the lower range, in the $5k-20k checks, although if you are accepted into a high caliber accelerator such as Y Combinator or Techstars, that number can go up to $100k. Before applying to these programs, check whether they give out funding as grants or for equity, and consider what option is best for you.

Check out the site Your First Investor to look at the different types of programs available around the globe, and browse through websites like AngelList and f6s to look for accelerators/incubators.

Crowdfunding

This is a great option for founders who are building physical products, although all types of companies can choose to crowdfund. There are a ton of different crowdfunding websites to choose from, although many still go for Kickstarter since it has a large user base and audience. The reason crowdfunding is great for startups that make physical products is because you can make initial sales through these platforms, allowing you to gain traction to show to future investors.

Bonus: Equity Crowdfunding — this is another way to crowdfund, except that instead of selling or offering a product, you are offering a stake in your company in return. Here is a list of the most popular equity crowdfunding sites.

Among our personal favorites are Republic.co as they curate an amazing set of startups to invest in. Angelist and SeedInvest also connect founders to a curated group of accredited investors.

Banks

Banks offer traditional business loans– the drawback to this is that you typically have to be a more mature startup and do have to show some proof of traction or revenue, or have someone vouch for your credibility. Banks generally don’t like to bet on startups as they are risky ventures, and this tends to be a better option for businesses who are established and are looking to grow. Also banks usually do not provide capital for equity, but provide capital as loans (debt).

Personal investors

Personal investors, sometimes referred to as ‘friends, family, and fools’ tends to mean a ‘friends and family’ round, which is exactly what it sounds like– you ask your friends and family to invest in your startup in exchange for equity. Many companies choose to raise a ‘friends and family’ round before going to angels or institutional investors, as this is an indicator of good faith, and can be an incentive for other types of investors to take a look at your company. However, make sure you feel like your company is at a point where raising this round is viable, as asking funds from your loved ones is often risky.

Angel investors

An angel investor is classified as a person with a net worth of over $1 million or someone who earns an annual income of $200,000 or above for at least two years. Angel investors are generally the first investor founders go to when they are ready to raise a seed round, or when they are raising money to get to a specific milestone. Angel investors vary in the size of check they write, and you’ll have several angels join your round to reach your target funding goal. For aspiring angel investors, check out angel syndicates in your area to identify which investors you want to reach out to and click ‘follow’ this post. We will be posting more learning material for new angel investors.

Venture capitalists

Founders normally reach out to VC firms when they are ready to raise an institutional round, which means that their startup is showing a significant amount of traction or they are working on a concept that requires significant funding to get off the ground. Taking on institutional money is best when a company already has product-market fit and is looking to scale to new markets. Venture capitalists invest starting at the low $25,000 but can all the way up to the millions, depending if they are investing at seed, Series A, Series B, and beyond.

If you are a founder — where do you think your company falls? Use this list to evaluate what type of investment you should aim for first, and as your startup grows, consider other types of investments to take on.

By Sergio Marrero & Alana Matos