Types of Investors for Startups
Have a brilliant idea, but need money to get started? In this article, we list 8 places to find capital and get started on your business.
1) Friends and family
This is one of the most common forms of startup funding. Investors or banks may not want to risk their money, but your close knit friends and family may be willing to take the risk.
The advantage from raising capital from your network is that it is a great way to secure some capital fast! Moreover, your friends and family are more likely to believe you, and they can be more forgiving than some of the other types of investors.
Of course, there are disadvantages of raising capital from friends and family. This includes the risk for strained relationships. If your business venture is not successful, you can probably expect awkward family or friend get-togethers. You can mitigate some of the risk by making sure that you have a solid business plan in place that is upfront about the risks and details how you will spend the money.
Most people have probably heard about Kickstarter. There are also quite a few other crowdfunding resources. Check out a list that is accessible to Canadians here.
One thing to note is that many have an all-or-nothing funding model (i.e., if you do not meet your funding target, you will not collect the money). Some of crowdfunding may be capital or equity based. It is important that entrepreneurs understand the benefits and disadvantages of each model and the crowdfunding platform.
There are hundreds of Canadian government grants available for small business owners and startup entrepreneurs. You may also be eligible for government business loans. For Canadian, check out this website to see if you are eligible for one.
4) Banks and financial investors
While the banks or financial institutions may not seem like the traditional ‘investors’, they can provide a good source of capital. As your startup gains traction, you may be eligible for a line of credit or advance loans. Generally, you will have to produce proof of a revenue stream, but you do not have to be a mogul in financing to get these loans.
5) Accelerators and incubators
Accelerators and incubators are great vehicles to get your startup up and running. If accepted in one of these programs, you will receive some seed money to cultivate your idea. Moreover, these programs have a myriad of additional knowledge (in the form of mentors and advisors) as well as resources. Generally these programs a re gateway to bigger funding sources.
6) Angel investors/groups
Angel investors are individuals while angel groups are a group of angel investors. These investors usually work with early time startups between their first time financing and venture capital effort. Angels incur more risk than venture capitalists, so their equity stake is generally higher.
Fun fact: If you have seen Shark Tank or Dragon's Den, the Dragons and Sharks would normally fall in this Angel Investor category.
7) Venture capitals
Venture capitals are private equity investors that provide capital to companies that exhibit high growth. The capital is exchanged for equity. They usually invest sizeable amounts of money depending on the stage of your startup.
8) Corporate Investors
Some big corporations can offer programs to invest in startups. Normally these can be found on their company website. Each of these corporate investors would have specific conditions and eligibility guidelines for investing in a startup business; read them over carefully.
There are many ways to find capital. Each of these investors can have different quirks and angles; hence it is important that you have a good understanding of your company, where it is at, and where it is going. Most importantly, don't fret if you cannot secure funding the first time! Take feedback from the investors, make changes if necessary, and try again.
Have any questions? Feel free to reach! Our team of business consultants can help you raise for your pre-seed, seed, series A and B funding rounds. We also help you find and write government grants. Reach out!