The speaker describes different types of investors for startups, starting with friends and family. They explain that these investors typically invest.
The speaker describes different types of investors for startups, starting with friends and family. They explain that these investors typically invest smaller amounts and do not perform extensive due diligence.
Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about the types of investors for startups. There are different types of investors that are going to be investing in startups. That’s going to range from the angel investors that you see at a very early stage to all the way to institutionals. There are so many different profiles and so many different roles. In today’s video, we’re going to be breaking them all down, giving you every single type of information on every one of those, so that you get a good idea as to who are those investing in startups and what to expect from them. So without further ado, let’s get into it. The first is friends and family. Essentially, those are the people that love you and those that already know you that are not going to go into a lot of detail or due diligence to understand what you’re up to and to see if it makes sense or
not to make an investment. Those types of investors are going to be investing anywhere between $1,000 all the way to $200,000. Again, they’re not going to be sophisticated people, so you can’t expect them to open any doors, make any introductions. Essentially, they are people that are close to you, that love you, and that’s why they are investing. Next are the banks and government programs. Banks are the worst, really, when it comes to giving money for early-stage companies, but you have, on the other end, the government programs, which is like grants. The beautiful thing about grants is that you are asking or making an application in order to receive an investment without giving away equity. It’s a really great thing if you are an early-stage company. For the banks, typically, they’re going to require that you have revenues that you have tangible assets. So, for early-stage, the
hypergrowth tech-enabled companies are not the best. Maybe if you go a little bit farther in the journey, if you grow a little bit more, and you pass maybe the Series B financing cycle where you’re doing anywhere between $5 million and up in revenues, then banks are going to be a good route. But the earlier that you are in the journey, the tougher that it is going to be to get those banks to trust you with their money. Again, maybe the grants are the best solution if you’re at a very early stage as a startup. Next, you’re going to have the angel investors. Angel investors are really a fantastic source of investments when you are at a seed stage, which is the first round of financing that you’re raising besides the friends and family money. Essentially, angel investors are going to be giving anywhere between $10,000 all the way up to $50,000 – typically, it’s around $25,000, the average.
But you can see super angels that are investing all the way up to 4 million dollars. Those are called the super angels. Now, here’s the thing. Angel investors are not the ones that are on LinkedIn with the “angel investor” title. Angel investors are ultimately those that are senior executives that can afford to make a very high-risk investment. Typically, they allocate anywhere between 5% - 10% of their portfolio to high-risk investments, and, in the end, they are going to be people that can add value. Those are people that are familiar with your domain and your segment. Maybe they have been an entrepreneur in the past and did an exit, meaning that their company got acquired in the domain in which they’re looking to invest in, where they can bring their networks and make a difference. Again, it’s people that have that domain expertise and that are investing us, individuals, a small
amount of money. Then, you have the angel groups. Angel groups were a great way for people that were not really connected and that were perhaps senior executives to come together and share deal flow, and then also take a look at doing their due diligence together on certain opportunities. Angels groups are interesting because they invest in different ways. They can invest as a fund. Or they invest with a special purpose vehicle, where they group all their investors to come in as one as an investment, coming from one entity, rather than multiple entities, which makes the cap table much cleaner. Or they can also invest individuals directly if they like what you’re doing. Here, you have great examples like the New York Angels, the Houston Angel Network, so there are different angel groups that can actually help here in this segment. But again, an angel group is just a group of all these
different angel investors that are coming together to make investments. The next is the accelerators or incubators. Those are really great programs that get involved at the very early stages. You have the Y Combinators of the world, Techstars, Dream Ventures – there are great, great accelerator programs out there. Unfortunately, there’s a lot of noise; there are a lot of accelerators out there that they promise you everything and the moon, but essentially, they don’t deliver. I would carefully, carefully consider who are the best and the best are those that have made the most amount of investments and that have the most amounts of exits. That means that they’re very good at preparing their companies to be successful later on. Typically, the accelerator programs, what they require is that the entrepreneur moves into their facility or perhaps attends where they are based or holding those
discussions or those sessions for a period of at least 2 to 3 months. What happens is that they have all types of experts and advisors that they plugin so that they can help you over time during that time that you are attending the accelerator program. They essentially end up with what they call the Demo Day, which is a presentation day where you come in with your pitch deck, which by the way, you can find the pitch deck template below that founders are using to raise millions all over the world. Essentially, they grab the pitch deck, the founders, attend the program, and pitching to a whole audience of investors. That is Demo Day. The worst accelerator programs are those ones that bring in service providers. Unfortunately, most of the accelerators besides the best ones are full of service providers when Demo Day comes. So, you’ve got to be watching out for that. Typically, the
investments that are in an accelerator program is going to be making in companies, it really varies. It can go from as little as $10,000 all the way up to $120,000. Accelerators and incubators are not only a great way to receive investment, but then also a great way to surround yourself with a great network and people that can push forward to help you in building things in the right direction. Then you’re going to have family offices. Family offices are the vehicles that have been started by the typical people that you would see on the Forbes richest, wealthiest list. The Forbes millionaires, for example. Typically, those vehicles – it only makes sense to establish when you have available at your disposal at least $100 million to invest. Again, it’s going to be super-wealthy individuals. These are going to be people that can invest all the way up to $4 million in one single ticket size.
This is going to be super successful business individuals, people that have inherited maybe from their parents or grandparents that have money, or people that are senior executives that have made a ton of money as salary. Again, those family offices have a very interesting approach. They’re very secretive, and typically, you’re going to need a really killer introduction in order to gain access to them.” Again, these are the typical people that you would find on the Forbes richest list. The next is going to be venture capital firms. Venture capital firms are coming in more likely at the Series A round of financing, which is where you’ve already been operating your business for maybe like a couple of years, and maybe you’re shooting for $1 million and up in revenues. Typically, anything before that is called a micro venture capital firm. Again, those venture capital firms are going to be
investing anywhere between $250,000 all the way up to $5 million. Getting into a venture capital firm is a little bit difficult. It’s not as easy as going to your friends and family. Here, you really need to get into the circle of trust. The best way to get into the circle of trust is by getting a founder of a portfolio company. This means someone who has received an investment from that investor that you’re looking to target as a venture capital firm in the last 6 to 12 months and use them to get you in. That would also help with reducing the amount of time that it takes from the first touchpoint all the way to money in the bank. With venture capital firms, it is going to get more intense when it comes to the due diligence process, and it could be anywhere between 3 to 6 months to close the deal once they’ve shown any type of interest. Again, venture capital firms are also going to be
investing depending on your…