A Brief Guide to the Different Types of Business Investors

The famous organizational psychologist, Adam Grant, once said, “The most meaningful way to succeed is to help others succeed.” In line with that, small business owners and wannabe …

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The famous organizational psychologist, Adam Grant, once said, “The most meaningful way to succeed is to help others succeed.”

In line with that, small business owners and wannabe entrepreneurs sometimes need to rely on investors to succeed. Whether a company is looking to introduce a new product, expand operations, or perform a capital upgrade on equipment, investor resources can be of great help.

However, finding a business investor can be a challenging process.

Yes, there are different types of investors to fundraise from. But how are they different? And how do you tell which one is the right match for your business? In this post, we’ll briefly explain the 5 different types of investors to help you find the right one for your business.

1. Angel Investors

Angel investors are typically wealthy entrepreneurs who have the will and power to help others.

Many small business owners prefer angel investors over other types of investors due to the minimal legal requirements and legwork.

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Such investors may buy stock from a company or offer a business loan. Others such as high-tech angels may offer to help you introduce new technology to the market, and may sometimes prefer to participate in a company’s management.

2. Banks & Government Agencies

Banks and government agencies are another source of financing for startups and established businesses.

Banks are not an easy source of capital for early-stage startups. However, as your business grows and expands, banks become a viable option as they may offer development loans, lines of credit, and business credit cards.

Some businesses, especially those that deal with sustainable products, may qualify for special government grants and tax privileges. You can take advantage of government financing before resorting to other types of investors.

3. Venture Capitalists

CNN Money describes a venture capitalist as a funding institution that seeks to financially help companies that have shown a history of returns.

These are private equity investors who provide capital to companies exhibiting growth potential in exchange for an equity stake. A venture capitalist could be an investment bank, a financial institution or any well-off investor. Entrepreneurs prefer venture capitalists over other types of investors because, besides funding, you also get free expert advice on business matters.

4. Peer-to-Peer Lending

Peer-to-peer lending allows business owners to list projects online for financing considerations by potential investors.

Typically, business owners create online profiles for their projects on sites like Lending Club to be considered by investors. Such sites help to cut out the middleman by connecting entrepreneurs who need money with investors who have money and are willing to invest.

5. Personal Investors

In the initial stage of business, most small business owners solely rely on close acquaintances—family and friends to bring the business to live.

Personal investors are people who know you and believe in your vision. They can be of great help, especially when you don’t have enough collateral to secure a bank loan. Even though personal investors can help in financing, there is a limit to how much they can invest in your business.

That’s it! These are the most common types of investors available today. We hope this article will help you find the right investors for your business.

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