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Decoded: What are the various types of start-up investors?

You hear about various kinds of fundraising - angel investments, series A, B, C, and more. And then there also are incubators, accelerators, PE-VC investors, etc. How do these differ from one another?

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Decoded | startups in India | Start-ups

Team TMS  |  New Delhi 

Thinking of starting up? Well, then this explainer is just for you. often raise funds from external sources like investors. But wait, there are several different types of investors. They are differentiated not only by the size of their investment but also by the stage they typically come in. Friends, Family & Contacts: The first investor type that an entrepreneur usually approaches is that of friends, family and close personal contacts. At this stage, they are essentially investing in the idea, and so past familiarity is essential. The money on offer could be between $1,000 and $200,000, and this is what is called a “seed round”. Angel investors and angel groups: A founder can also go and tap angel Investors. These are accomplished professionals with a high net worth and past experience in investing in early-stage Apart from the money, Angel investors also help with professional connections that could come in handy for a number of things. You also have angel investor collectives like the India Angel Network. Many HNIs are part of these collectives. Often multiple angels end up investing in a single deal. Incubators and accelerators: In the early stage of a start-up, founders can also go and sign up at an incubator or accelerator. These are month-long programmes that help founders set up their business and refine the ideas. Sometimes, incubators and accelerators also invest in A case in point is the hugely popular Y combinator. Venture capital: Considering that a business is off the ground, for the next stage of capital the entrepreneur can go to a “venture capital” firm.

VCs are the holy grail of investors for fundraising entrepreneurs and come with the biggest checks. A typical VC would invest $1 million to $100 million across Series A, B and C rounds of the company. This is basically the lingo for the 1st, 2nd and 3rd major investment rounds. Family office and corporate investors: Some enterprises go for the family office route to raise money. A family office is basically the investment arm of the founders of any successful enterprise. Just like anyone else, family offices invest in to diversify their investments. If the start-up is doing well in a particular sector, it may attract funds from a “corporate investor” in that sector. Corporate investors are essentially From time to time, they pick up stakes in or acquire other in order to grow. These investors can be great allies in terms of market access opportunities. Private equity: Private Equity firms are deep-pocketed investors and come in at late stages. What differentiates PEs from VCs, apart from the cheque size, is that PEs often buy controlling stakes. They are known to instil rigorous discipline in terms of costs and management practices in the firms they invest in. So, to recap, there are a wide variety of very different types of investors. Some are specialised in the stages and funding rounds and others may have a particular affinity to certain sectors. That said, these lines are increasingly blurring these days.

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First Published: Wed, October 27 2021. 09:00 IST
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