Types of Investors

Posted by Adam Haider on Apr 01, 2020 05:05: PM
Adam Haider

types of investors

Many people come up with great business ideas but they don’t have enough capital to implement their idea. Starting a business requires a huge investment, you can either invest your own money or pitch investors to invest in your business. 

According to the reports, there is an increase of 5.9 million private businesses in the UK in 2019. It includes several small businesses, SMEs, and unicorns. There are many types of investors who can finance your startup, we will explain each one of them in detail.

businesses in uk-1

Share of businesses in the UK in 2019

Image Credits: https://www.gov.uk/government/statistics/business-population-estimates-2019

1. Friends, Family or Savings


When your business is merely an idea, you should approach your family and close friends for investment. At this stage, it is hard to get funding from other sources. Your family and friends personally know you so they will invest in your idea without a second thought. Moreover, they may give you money without any equity. If your business becomes successful, you can return their investment or give equity in the future. 

 

This type of investor may not provide you a lot of money but it may be enough to start a business. If they ask for equity, it is better to have a written agreement between both of you so that business may not affect your relationship in the future. 

2. Crowdfunding 


Many entrepreneurs are raising capital through crowdfunding and it is getting a lot of popularity lately. If you are not familiar with crowdfunding, it is a way of raising capital from a number of people by pitching your idea. There are three types of crowdfunding including donation-based, rewards-based, and equity-based.

 

Crowdfunding is a great way of raising capital if you have a small business. It is estimated that the crowdfunding will grow up to £18 billion in 2020. If you are looking for funding for your business, various crowdfunding platforms can help you.  

growth of crowdfunding in uk

Growth of crowdfund transactions in the UK.

Image Credits: https://www.statista.com/outlook/335/156/crowdfunding/united-kingdom?currency=gbp#market-revenue

3. Angel Investment


Angel investors are individuals having surplus cash and interest in investing startups. Most angel investors are experienced business owners who provide mentoring to your startup as well. However, they usually take 20-30% equity or more depending upon the risk involved in your startup. 

 

Angel investing is one of the major sources of investment for early-stage businesses. However, approaching angel investors and pitching them is not easy. TrendScout is a platform that helps you connect to an angel investor. Also, we help you to prepare a convincing pitch deck to properly convey your business idea. 

4. Venture Capital 


If you have an emerging startup, you can approach venture capital firms for investment. Venture capital firms provide funds in exchange for equity. However, they have very strict regulations and prefer to invest in startups that are already generating revenues. 

 

Venture capital firms usually invest in companies with a short leash, as they prefer to recover their money in a period of three to five years. It is estimated that venture capital trusts in the UK have issued more than £716 million shares in 2018-19. So many growing companies are being funded by venture capitals including Uber, Flipkart, etc. 

5. Incubators 


If your business is in early-stage, you can consider incubator programs as a funding option. Every city in the UK has incubators, which provide you everything you need to start a business. But first, you have to show your idea has the potential to become successful. 

 

An incubator not only provides you capital to start your business, but it also nurtures your startup. They provide training, network to a business, and office space for your business. There are nearly 205 active incubators in the UK, which are supporting around 3450 startups. 

6. Bank Loans


Before venture capital firms and angel investing, many entrepreneurs used to go to banks for loans. A bank provides two kinds of financing, including capital loans and funding. For funding, you need to submit your business plan and business description, based on which the bank will sanction your loan.

 

While choosing a bank for a loan, you need to do the research about the best available options otherwise, you may end up hurting your business. As it is a loan, you need to return the money to the bank even if your business doesn’t succeed.  

7. Pitching Competitions


One more way to get funding is to pitch your idea in front of investors and corporate partners in a pitching event. Several competitions are announced where you can represent your startup and attract investors. 

 

There are many organizations in Britain that organize pitching competitions. If you win any competition, you will get investment along with a chance to work with mentors. However, you need to prepare an extraordinary business plan to pitch your idea. 

 

If you need any assistance in preparing a pitch deck to attract investors, TrendScout can help you in this regard. 

8. Peer-to-Peer Lending


In case your loan doesn’t get approved from the bank or your credit limit is not sufficient, there is another way of getting a loan. Some people prefer loans instead of investments as they don’t want to give a share in equity. 

 

Peer-to-Peer lending allows entrepreneurs to obtain loans from other people instead of a financial institution. However, you have to repay the loan along with the interest on the money. People are now turning towards P2P websites instead of getting loans from the bank. 

Wrapping Up

There are many types of investors but choosing the best one for your business is an overwhelming process. You need to weigh the pros and cons of getting investment from every source. However, we would suggest you approach an angel investment. 

 

If we look at the pros and cons of angel investment, it has certainly proved one of the best ways of funding. No matter at what stage your business is, you can approach an angel investor. Moreover, you can get mentorship on many important matters of the business. 






Topics: investment, unicorn, angel investors, venture capitalists