An investor is an individual who injects capital into a business or startup. Many investors provide funding in exchange for a portion of ownership in the startup (equity) and rights to share in the startup’s future profits.
Angel Investors:
An angel investor is usually a high-net-worth individual who offers promising early-stage startup companies funding in exchange for ownership equity or convertible debt. This tends to be on seed rounds of financing and also series A rounds. These funds could either be one-time or an ongoing capital injection. Angel investors usually provide more favorable terms than other investors and use their money.
Angel investors could be accredited investors, but this isn’t necessarily a requirement to be an angel investor. Some angel investors are individuals who have held top executive positions in large corporations.
Angel investors are attractive to startups because of the flexibility of their terms, the potential to raise more money through fewer investors, and potential referrals to other angels. Also, an angel investor can be an advisor to the founders of the company they are investing in because they usually have experience in the field.
Angel investments are typically high-risk; as a result, they tend to fund more startups than other investors. The startups they fund often don’t need customers or users or generate any revenue. Sometimes, a solid business plan that passes the beta test or a minimum viable product may be good enough.
Founders can find angel investors through websites, and social media platforms, especially Twitter, by attending networking events, etc.
Accelerators
A startup accelerator is an organization created by experienced tech entrepreneurs to help early-stage tech companies develop their products, hone their business models, and connect with investors. They do this through fixed-term cohort-based programs that include mentorship and educational components and end with a demo day.
In return, most accelerators take a percentage of all profits earned by the companies they help to launch. Some of the benefits accelerators offer to startups include thousands of dollars in seed money and expert guidance.
For startups to get into an accelerator program, they need to apply, go through the application selection, a personal interview for founders, and selection days.
High-profile tech startup accelerators include Y Combinator, Techstars, and 500 Startups.
Venture Capital Firms:
Venture capital firms fund and mentor promising startups using capital from limited partners. To raise this money, venture capital firms open venture funds and ask for commitments from limited partners. Through this, they can form a pool of money which is then invested in the startup. In exchange for their investment, the firms often take minority equity in the startup (50 percent ownership or less).
In their selection, venture capital firms typically consider growth potential and risk.
As companies grow, they go through the different stages of venture capital. If a company a venture capital firm has invested in goes public or is successfully acquired, the firm makes a profit. It distributes returns to the limited partners invested in the fund.
Family Offices:
A Family Office is a private wealth management advisory firm that manages the wealth of a high-net-worth family or several high-net-worth individuals by growing and transferring family assets across generations.
One of the ways family offices does this is by investing in startups. Single Family Offices (SFO) manage just one family, while Multi-Family Offices (MFO) manages several families.
Funding from family offices can sometimes be obtained faster, with more flexible options. Additionally, MFOs can introduce founders to other potential investors within their network.
However, many family offices do not have as much of an online presence as other types of investors. This is because many wealthy individuals prefer their privacy; some family offices sometimes change the name they use on the cap table. Founders can find family offices by subscribing to specialized databases such as’ Family Office Club’, connecting with specific high-net-worth individuals on LinkedIn and joining LinkedIn SFO and MFO communities.
DFIs
Development Financial Institutions (DFIs) are specialized development banks or subsidiaries set up to support private sector development in developing countries. DFIs offer loans or guarantees to investors and entrepreneurs and equity participation in firms or investment funds.
DFIs include the African Development Bank, the Development Bank of Nigeria, and the Inter-American Development Bank.
Impact Investors
Impact investors seek to support beneficial, social or environmental outcomes alongside financial returns. Impact investments may be made in stocks, venture capital, or any other asset class.
Due to their interest in making a positive social or environmental impact, impact investors are sometimes willing to accept returns on investments below the market average (concessionary returns).
Common target sectors for impact investors include healthcare, renewable energy, and microfinance.
Grant Givers
Grant givers are public bodies, charitable organizations, or specialized grant-making institutions that offer to fund for specific purposes and may require the recipients to comply with certain rules. Grant givers typically do not expect to be repaid for the funding.
Seedstars Africa, Tony Elumelu Foundation Entrepreneurship Program, and Acumen Fund are well-known grant givers.