Today, we’ll talk about the different type of investors you will find in the startup world.
There are four type of investors for your startup — Venture Capital, Angel Investors, Family Offices and High Networth Individuals. There are lenders who provide debt financing but that’s a topic for another day.
Venture Capitalists are professionals with experience in the startup world coming from either the financial space or have run a startup in the past.
– They invest funds from limited partners such as family offices and pension funds.
– They invest for homeruns and seek a 10X return on every investment.
– They invest $150K to $500K on first rounds for seed and Series fundings and usually set aside funds for follow on rounds.
Angels are typically successful business people who invest their own money as a side project from their day job.
– They look for a 3 to 5 times return on their investment.
– Angels invest $50K to $100K on first rounds and sometimes set aside funds for follow on rounds.
– There’s a saying that angels want “to do a little good, have a little fun, and make a little money.”
Family offices are businesses set up to invest their own funds for a return and often have impact investing as part of their investment thesis.
– They invest $250K on first rounds and $500K or more on follow on rounds.
– They tend to be patient money.
High Networth Individuals (HNI) are similar to angels who operate at a higher level of funding writing checks of $100K to $250K for first rounds.
You can also raise money from family and friends, but I recommend raising small amounts below $10K each as Thanksgiving turkey tastes different if things don’t work out.
All of these investors meet the accredited investors criteria. Accredited investors are those the SEC deems high networth and can afford the risk that comes with early stage funding. You can learn more about the criteria to be an accredited investor by looking on the SEC website. In short, it’s anyone who has a networth of $1M or more not counting the house you live in.
Thank you for joining us for the Startup Espresso.
Let’s go startup something today!
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NOTE: Investor Connect is a program under the Texas Open Angel Network which is a 501(c3) non-profit dedicated to the education around startup funding. Hall Martin is the principal contact, and may be reached at http://www.investorconnect.org/contact.
Hall T. Martin is the Director of Investor Connect which is 501c3 non-profit dedicated to the education of investors for early stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.