External funding can make or break a company. You might have it all — a big idea, a compelling business model, a great team, the X-factor — but without a boost of investment capital, you might find that your company will reach a growth plateau. Naturally, the best source of capital is, of course, the company’s own revenue.
The next best source is external funding. There are different pathways to raise capital no matter what stage of development your business is at. There is already a plethora of resources on how to raise funds from institutional or government grants, incubators, accelerators, and angel investors for early-stage startups. The next level is where growth-stage investors come in.
Investors play a critical and unique role in the business growth journey, and their involvement in your business can determine its exponential success. If your company already has what it takes to attract investors, you would now be suited to consider what kind of investment capital you need.
What type of investors should you look for and will they be a good match for your company? It is critical for you to understand what type of investment capital you need as this creates the foundation of your approach to the investors. Let’s take a look at the different types of investment capital that startups and SMEs can get, and how the different types of investors can contribute to your organization.
1 – Accelerators and incubators
These are programs that essentially serve as the gateway to other investors. If you can get into these programs, you will receive seed money to help your startup gain some early traction. You will also learn more about how to scale your startup and refine your sales approach.
These accelerators and incubators can help you get $10,000 to $100,000 in funding. Once you’ve used it to advance your startup to the next stage, you’ll find yourself more equipped to pitch to larger investors.
2 – Angel investors
In the seed stage of your startup, you can approach angel investors. These are often HNWI (high net worth individuals) or UHNWI (ultra high net worth individuals) and professional investors that usually take interest in smaller operations and offer flexible terms for funding. However, they also often expect a high return on investment and want to be more involved in business operations.
Angel investors are also willing to share a lot of wisdom and offer their network to startup founders. The knowledge and connections you gain from these investors can help you take your business to the next level. In addition, angel groups organized by these investors may also offer you larger funding.
3 – Venture capitalists
Venture capitalists or VCs are considered the most notable investors for startups. They usually come in after the seed stage or when the startup has started getting a steady stream of income. VCs have a pool of money to draw from and are able to finance a startup for up to $10 million, sometimes more
Venture capitalists invest by purchasing equity in your company and earning their returns through payouts. They are able to help you gain more traction by giving you credibility. In order to attract venture capitalists, you must have a minimum viable product, a good market size, and a potential for rapid growth.
4 – Private equity firms
Institutional or accredited investors go through private equity firms to invest in businesses, which gives them an ownership stake in the company. This doesn’t mean that you lose control of your business – this can simply mean that the investment requires longer holding periods, which sometimes result in liquidity events like launching IPO or a sale to a public company.
Private equity investments are attractive to businesses because they often invest a substantial amount to help businesses in their growth stage. This is an interesting funding option because they are able to bring in larger funds, and you can review your business strategy in order to utilize these funds effectively.
5 – Family offices
Not many new founders know that more family offices are now increasingly interested in investing in startups. They are highly sophisticated players that invest in businesses across different stages of growth. Family offices are usually inclined to invest in startups that are geared toward environmental and social impact.
Family offices typically think of long-term, multigenerational investments more than other types of investors, and consider prestige and income as important aspects of their investments. These families are also more patient when it comes to pivots or market changes and usually act as mentors to founders.
Depending on the investor group you approach, some might require you to develop more mature businesses and sophisticated business relationships. Other less commonly discussed investor types include corporate ventures, sovereign wealth funds, multifamily offices, and specialist funds like impact investment funds. Unlike accelerators, angel investors, or VC/PEs, these types of investor groups are generally less accessible, as most investments with these groups are fundamentally based upon credible and highly trusted long-term relationships.
Regardless of where you are in your business growth stage, you will find that there is a specific type of investor that best matches your funding requirements. Speak with us at Trinitas Investments to discuss your capital strategy and gain access to investment capital that is best suited for your company.