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5 Types of Investors

Types of startup investors

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‘Investing puts the money to work. The only way to save money is to invest it.’ Grant Cardone
While business owners invest their own savings and earning into their business, for a business to grow and expand at a faster rate, external investment and funding is extremely necessary. Investors are an important part of a business’s growth. Enough that their investment and interest in a business can make it or break it. If you are an aspiring entrepreneur or the owner of a small business looking to expand your brand and looking for startup funding, you have come to the right place. We are here to help you understand the type of investors available for your startup to help it achieve the growth and success you want for it.

Here are the five most common types of startup funding:

1. Banks
A lot of small businesses look to banks for their capital needs since they cannot manage that much money on their own. However, since the mortgage bank crisis hit in 2007, it has become extremely difficult to secure loans from banks. It would help if you have had any prior experience in the industry or you have some links in the industry such a mentor, a colleague or a friend who can help you.

However, would like to mention here that the interest rates at which the banks loan money are extremely high and if your business does not do really well in later years, you are going to be in big trouble. So, think it through before you finally decide to take funding from a bank.

2. Angel investors
We believe many of you would be unaware of this term. So, what are these ‘angel investors’? Angel investors are also known by the term private investors and this term is given to any individual who is wealthy and has a high net worth who is willing to provide funding to a startup in return of ownership equity in the business. Sometimes, they show interest only in a specific kind of company which they would like to see excel in the industry and also provide mentoring and advise in addition to startup funding.

3. Personal investors
Many a times, help can be found from those closest to you. Many people do not approach family or friends to invest in their startups, but this occurs more than you know. And since they are loyal and sincere to you, there will be less suspicion of any stealing, high expectations or problems occurring from their sides. Also, their loyalty causes them to also provide long term investments rather than just helping and providing funding for a startup business to get off the ground.

4. Peer to peer lending
The process of peer to peer lending works through avoiding a middleman and basically involves individuals or groups who are looking to invest in a business. To secure this kind of funding for their businesses, entrepreneurs need to apply with companies that specialize in peer to peer lending by submitting an application. The individuals or groups will then review their applications to decide whether they are interested in the business or not.

5. Venture Capitalists
These people invest only after the business has started to earn a considerable sum of profit. The investments of these investors are quite significant as they usually contribute a large sum of money to the business. Obviously, since they invest so much, they are entitled to a percentage of the profit known as ‘carried profit’.

These were a few investment ways to get your startup company enough funding to get off the ground. Good luck for your business endeavors!