What is an Investor?
An investor is someone who puts money into a business venture or another financial scheme with the goal of making a profit.
Most entrepreneurs require capital from investors to launch a startup or fund ongoing business expenses. An investor can turn your business idea into a reality, but you must choose the right investor for your startup or if could do your business more harm than good in the long run.
What types of Investors are there?
There are several different types of investors that could help you start a business. Here are the five of the most common investors and how they could potentially benefit your company.
Angel Investors
Angel investors (also called private investors) are high-net-worth individuals who usually fund startups at the early stages, often with their own money. In most cases, an angel investor provides a startup with money in exchange for ownership equity in the business. This may be given in the form of a one-off payment to help a startup launch or ongoing financial support.
Many small companies prefer to seek funding from angel investors as they usually have an interest in the business and take a less predatory approach when compared to other types of lenders e.g. venture capitalists. However, angel investing is risky and independent financial advisers recommend that this type of investment should not represent more than 10% of a person’s overall investment portfolio.
There are several platforms where you can search for angel investors to support your business. For instance, angelinvestmentnetwork.co.uk was created to connect businesses with investors across the UK.
Peer-to-Peer Lenders
Peer-to-peer (P2P) lenders can be individuals or businesses. P2P lending is the practice of lending money to entrepreneurs or established companies through online platforms that connect lenders with people who want to borrow cash.
Some of the most popular P2P lending sites are Peerform and Funding Circle. These platforms match borrows to investors, who then lend money to qualified applicants. P2P lending is an alternative to taking out a bank loan or borrowing money from a traditional online lending company. However, P2P lending is considered a type of investment rather than a loan as there is a risk that the lender will lose all of their money if the business fails.
Personal Investors
A personal investor is someone who invests their own money into a startup or business. Many personal investors are family or friends who help fund a small business. Personal investment can be provided as a loan or in exchange for a percentage of ownership.
Banks
Banks are the most traditional source of business funding and many entrepreneurs apply for a small business loan to launch their startup. Here are some of the pros and cons of this classic funding source:
Pros of a business loan:
- Get the funding to grow your business.
- Have full control over your company and funding.
- Borrow money from a reputable lender.
- Secure favourable interest rates.
- You won’t lose any equity.
Cons of a business loan:
- Many banks have strict eligibility criteria.
- They may be a long application process.
- A bank loan is not suitable for ongoing business expenses.
- Secured business loans put your assets at risk.
Venture Capitalists
A venture capitalist is a private investor that provides money to businesses that demonstrate high growth potential in exchange for an equity stake in the company. They usually invest large amounts of money, but only once a business has shown the potential for significant revenue and profits.
The main benefit of seeking investment from a venture capitalist is that they can help you scale your company quickly and put you in touch with other business leaders in your industry. However, they will own a stake in your company meaning you will lose equity and your founder ownership will be reduced.
Get started investing with Prosperity Wealth
Investing your money can be one of the best ways to generate income, build your wealth, and achieve your financial goals. However, investing money carries risks and you must make smart investment decisions.
At Prosperity Wealth, our independent financial advisors have many years of experience across a wide variety of investment sectors. We will work with you to create an investment strategy that aligns with your goals whether that’s enterprise investment schemes, venture capital, or investment bonds. Get in touch with our specialist team today and we can arrange a free consultation.
