One thing about entrepreneurs is that they’re creative. You need to give that to them. Super creative and constantly churning out brilliant ideas. Creativity fuels their entrepreneurial spirits. I mean, entrepreneurship is all about identifying opportunities, solving problems, being innovative, thinking outside the box. You guys are the real MVPs!
But there usually seems to be a constant blocker. Not enough funds!
The good news is that there are people out there whose main goal is to look out for small businesses they can invest in. These groups of people are called Investors.
There are different types of investors out there that can fund your business idea. Therefore, if you’ve got the most creative and innovative idea ever but no funds to execute it, Keep reading because you’re in the right place. In this blog, we will show you the different types of investors that can invest in your small business.
Who is an Investor?
According to Investopedia, an investor is any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns.
They provide financial support to individuals, businesses, startups, or established companies in exchange for ownership (equity) or a promise of future returns on their investment.
Types of Investors for Small Businesses in 2024
1. Personal Investors
These types of investors are related by blood or marriage, like your spouse, siblings parents, and even friends. The decision and terms of agreement to do this are usually based on their relationship. Getting this type of funding can be easy or difficult depending on how you look at it.
For example, if you have a great relationship with your loved ones, getting money from them can be less stressful as you don’t need to go through a lot of documentation or processes to convince them that you’re a good fit to use the money prudently.
On the other hand, because you have a close relationship with the investor, it places a high responsibility on you to maintain their trust.
We recommend that both parties set guidelines and expectations to ensure an amicable relationship. It can be tricky mixing business with pleasure, so, if possible, involve a lawyer to make sure both parties understand the legal consequences and to make things go smoothly.
2. Venture Capital (VC)
Venture capitalists are investors who provide financial support to startups/small businesses with high growth potential. In return, they become part owners of the company. They expect a profitable return when the company goes public.
But Venture Capitalists don’t just give money and walk away. They are experienced business experts who offer guidance, advice, and support to help the company succeed. They want the business to do well because when it does, their investment becomes even more valuable.
Here are some pros and cons of VCs
| Pros | Cons |
| They have access to a lot of capital | They ask for an ownership stake in your company |
| They also bring valuable industry expertise, market knowledge, connections, and mentorship for entrepreneurs. | They have high expectations |
| VCs have extensive networks of contacts, which can open doors to new partnerships, customers, and potential acquirers for the startup. | They conduct thorough due diligence before making an investment decision which could be time-consuming. |
| Securing investment from reputable VCs can validate your business’s model and potential, boosting its credibility in the eyes of other investors, customers, and partners. | After some point, VCs expect an exit event where they sell their ownership stake in the company and receive the money they initially invested, along with any additional profits they’ve earned. |
| VCs can provide different types of funding, including equity investment, convertible notes, or preferred stock, tailored to the startup’s specific needs. | VCs often have a say in strategic decisions, so founders may need to relinquish some control over the direction of their company. |
Read: Introducing Earn by Trove: Make More Money with your Idle Cash!
3. Angel Investors
Angel investors are individuals who invest their funds in startups and early-stage companies in exchange for ownership equity or convertible debt. Unlike venture capital firms that pool money from multiple investors, angel investors invest their own money and typically take a more hands-on and personal approach to supporting the startups they back.
Angel investors mostly invest in ideas they like and don’t expect returns till the idea succeeds.
4. Crowdfunding
This is a type of fundraising where businesses ask for financial contributions from the public in exchange for equity in their company.
Examples of crowdfunding websites include: Kickstarter, Indiegogo, and GoFundMe
5. Business Incubators/Accelerator
These investors are like support systems or training programs for startups and early-stage companies. They provide a nurturing environment and resources to help your business idea grow into execution. They do all the nurturing until your company can stand on its own.
Business incubators support new high-tech businesses with shared resources and facilities. They help develop products affordably and increase success rates. Incubation lasts up to two years before businesses become independent.
In terms of payment, Business Incubators/Accelerators usually ask for equity, program fees, success fees, or royalties. Aside from funding, they also provide guidance, learning, and workshop opportunities for growth.
6. Grants and Subsidies
A grant is money given to your business that doesn’t need to be repaid. It’s usually given to individuals, businesses, or startups by the government. However, you must use it according to the grant’s terms.
Additional funding may be available if you meet program requirements. Grants are competitive and have strict criteria, often requiring some matching funds from your business.
7. Loans
Loans are the most common way for small and medium-sized businesses to get funding. Different lenders have different benefits, so finding one that suits your needs is important. Having a solid business plan and a good credit score increases the chances of getting a loan.
Conclusion
Having an investor invest in your idea is a great way to sort out the issue of raising capital for your business. Also, there is so much to explore in the world of investors for your small business/startup.
However, before you decide on which investor to choose from this list, ensure you do your research, understand what each concept entails, and pick the one best suited for your needs and business goals.
