Different Type of Investors

Obtaining startup funding for your company is not an easy task, but it’s not impossible to secure funding for your company’s growth. There are constant announcements and daily hype surrounding startups getting funding. And with all the news about the rise in the types of investors, there are many new ways for companies to find funding.

For many entrepreneurs who are entering into the business for the first time, expect to spend about 4 to 6 months to raise the necessary startup funds. The main reason behind this is that not everyone knows everything about funding off the bat, and the different types of investors and startup funding.

Understanding the Investors

Investors provide the capital startups need to grow, but they come in distinct categories based on who they are and what stage they typically fund. This guide clarifies these using two ways: who provides the money (individuals vs. institutions) and their role in the funding journey (early vs. growth), to help founders match the right investors to their needs.

There are four main kinds of investors for startups which include:

• Personal Investors
• Angel Investors
• Venture Capitalist
• Others (Peer-to-Peer lending etc.)

Types of Investors

Personal Investors	Family members, friends, or close acquaintances who provide smaller amounts of capital in the early stages of a business.
Angel Investors	Individuals with high net worth not only invest their personal funds in early-stage startups in exchange for equity, but they also bring invaluable mentorship and connections to the table, enhancing the potential for growth and learning in these startups.
Venture Capitalist	High-net-worth individuals invest their personal funds in early-stage startups in exchange for equity.
Peer to Peer Lenders	Online platforms that connect businesses with individual or group lenders willing to provide funding, offering an alternative to traditional bank loans
Incubators and Accelerators	Incubators help develop ideas into businesses, while accelerators speed up the growth of early-stage startups.
Banks and Financial Institutions	Traditional lenders that offer business loans typically require a solid revenue stream, collateral, and a strong business plan. It is more suitable for established businesses.
Corporate Investors	Firms that acquire a controlling stake in more mature companies to improve operations and profitability and eventually exit the investment at a higher valuation.

Main Categories of Investors By Funding Stage

Understanding which investors typically participate at each stage helps founders target their fundraising efforts effectively. Here’s how investor types align with typical funding stages:

Pre-seed Stage: Getting Started

Bootstrapping and Founder Funding

Bootstrapping means funding your business using personal savings, revenue from early customers, or side income without external investment. Many successful companies, including Mailchimp, GitHub, and Basecamp, were bootstrapped for years before considering outside capital. This approach allows founders to maintain complete ownership and control while proving the business model.

However, growth may be slower, and personal financial risk is high. This works best for businesses with low initial capital requirements, quick paths to profitability, or founders with sufficient personal resources to sustain operations during the early months.

Personal Investors (Friends & Family)

Most business owners usually depend on their close acquaintances, friends or family to help them by investing in their business, normally during the initial stages. These types of investors are called personal investors, and even though they can assist with funding, there is a limit to how much they can invest in your company.

It is often easier to convince a loved one to help you out, but there is heavy documentation that is required for which they can be taxed for helping as well. So, if you are going to take a personal investor’s help, ensure that you consult a lawyer to help you avoid any complications.

Seed Stage: Providing Concept

Angel investors

Angel investors are those who put their money in small startups or new entrepreneurs. This is the most famous type of investors that most people may have heard about before. An angel investor might even be close to the startup owner, like friends or family.

Angel investment is normally either a one-time off funding for the business to propel, or an on-going investment to support and take the company ahead in the initial stages. Angel investors usually offer much more favorable terms as compared to the other type of investors. The reason is that angel investors invest in the entrepreneur opening a business, and not the viability of the company.

Angel Syndicates

These angel investors, who pool their capital and due diligence efforts to make larger investments, typically range from $100,000 to $1 million. A lead investor (syndicate lead) sources the deal, conducts due diligence, negotiates terms, and manages the investment on behalf of the group.

Platforms like AngelList, SeedInvest, and Republic have made syndicates more accessible. For founders, syndicates offer several advantages: access to larger funding amounts than individual angels can provide, streamlined closing with a single lead investor handling negotiations, and connections to multiple experienced investors and their networks. 

Crowdfunding Platforms

Crowdfunding allows startups to raise capital from numerous small investors through SEC-regulated online platforms. Under the Crowdfunding Regulation, companies can raise up to $5 M annually from investors. Popular platforms include Wefunder, StartEngine, Republic, and SeedInvest. Each investor might contribute anywhere from $100 to $10,000 or more, and campaigns typically last 30-60 days.

Beyond capital, successful crowdfunding campaigns provide market validation, customer acquisition, and brand awareness. Equity crowdfunding works best for consumer-facing businesses with compelling stories and existing audiences or communities to activate.

Series A: Scaling the Business

Venture Capitalist

A venture capitalist (VC) is an investor who offers capital to the startups that are believed to have long-term growth potential. Venture capitalists are normally investment banks, well-off investors, and any other financial institutions. Even though this is a risky way for investors to put in their funds, a successful payoff is worth it.

A VC would put their resources into a company that they feel has the possibility to grow, and in return, they would demand equity in the company and get an overall say in the company’s decisions. Since entrepreneurs get both open funding as well as the advice of an experienced and knowledgeable person, many tend to choose these types of investors.

In a VC deal, large chunks of the ownership of the business are produced and sold to some investors via independent limited partnerships which have been built by venture capital firms. At times, these partnerships are made up of a pool of various similar enterprises.

Private Equity Firms

Private equity firms typically invest in mature, profitable companies rather than early-stage startups. They acquire significant or controlling stakes to improve operations, drive profitability, and eventually exit at higher valuations. PE investments range from $50 million to billions. They focus on established businesses with predictable cash flows and often use leveraged buyouts (debt financing) to fund acquisitions. PE firms are less relevant to most startups until they’re well established.

Corporate Investors and Strategic Partners

Large corporations invest in startups for strategic reasons that extend far beyond simple financial returns. These corporate investors seek access to innovation, new technologies, or market opportunities that align with their strategic objectives.

Beyond capital, they can provide value through industry expertise, established distribution channels, and existing infrastructure that would take a startup years to build independently. Investment sizes vary widely depending on the strategic importance of the opportunity to the corporation. 

However, working with corporate investors presents unique challenges, rather than those of traditional venture investors. These relationships often develop into long-term partnerships and may eventually lead to acquisitions or joint ventures as the startup matures and the strategic fit becomes clearer.

Additional Funding Sources

Incubators and accelerators

Incubators and accelerators are a gateway to various investors. If you get accepted into any incubator and accelerator programs, you might get somewhere in the range of $10,000 to $120,000 in seed money to develop your thought and gain traction while profiting from extra information and assets. Assuming everything is working out in a good way, you will pitch to more prominent investors and will be instructed with subsidizing sources during their demo days that can assist with taking you to a higher level. Be prepared to hustle; these programs need you to grow rapidly heading to the next stage.

Banks and Financial Institutions

These aren’t accurate investors like the others on this list; however, they can be a source of capital. Conventional banks are not sources of capital for new companies and independent ventures. In any case, as you gain a foothold, they might offer business credit cards and advance loans.

There are government programs that provide grants to a particular kind of project. That doesn’t imply that acquiring this sort of capital will be any more straightforward, and loans require repayment regularly when you genuinely need liquidity and slack as possible. They will not need to surrender value to your organization. Yet, they can affect your productivity, which might show up when you attempt to fund-raise from different investors in the future.

One thing to note about government programs is that they accompany specific limitations and restrictions that might be difficult for new businesses on many occasions. Considering this, founders should survey cautiously about what those expectations are.

Peer-to-Peer Lenders

Peer-to-peer lenders are groups or individuals who provide capital to small business owners. But to obtain this capital from these types of investors, the owners would need to apply with companies that are experts in peer-to-peer lending, like the Lending Club or Prosper. As soon as the owner’s application gets approved by the company, the lenders would then determine if the company is right for their investment or not.

Key Differences: Investor Type Comparison

Capital Source	Personal savings or individual relationships	Personal wealth	Pooled personal wealth	Institutional funds from LPs
Investment Size	$0-$100K	$25K-$500K	$250K-$1M+	$2M-$15M+ (Series A)
Decision Basis	Personal trust and relationship	Individual assessment	Lead investor's judgment	Partnership consensus
Due Diligence	Minimal	Moderate	Moderate (by lead)	Extensive
Timeline	Days to weeks	2-4 weeks	3-8 weeks	2-6 months
Terms	Flexible and negotiable	Favorable, flexible	Standardized by lead	Standardized with protective provisions
Negotiation	Informal or individual	With each angel	Single negotiation with lead	Multiple partner meetings
Governance	None or informal	Advisory roles or board observer	Lead represents group	Board seats required
Stage Focus	Pre-seed	Seed	Seed to Series A	Series A and beyond
Requirements	Relationship-based	Founder quality, market potential	Strong lead endorsement	Proven traction, validated model
Expected Returns	Variable or none	10-20x over 5-7 years	10-20x over 5-7 years	3-10x over 5-10 years
Performance Pressure	Low	Moderate	Moderate	High
Best For	Getting started, maintaining control	Early validation, mentorship	Larger seed rounds	Rapid scaling, major growth

Matching Your Stage to Investor Type

• Pre-Revenue or Idea Stage: Start with bootstrapping, friends and family, or apply to incubators. Target angel investors if you have a strong team and a clear market opportunity.
• Early Traction ($10K-$100K MRR): Angel investors, angel syndicates, or equity crowdfunding. Consider accelerators for additional resources and connections.
• Proven Business Model ($100K+ MRR): Series A venture capital firms. Ensure you have strong unit economics and a clear path to $10M+ annual revenue.
• Scaling Revenue ($1M-$10M ARR): Growth-stage VCs, corporate strategic investors. May also consider venture debt to extend the runway between equity rounds.
• Established and Profitable: Private equity, strategic acquirers, or continue with later-stage VCs. Traditional bank financing becomes more accessible.

Why would any investor invest in your startup/business?

Investors are different from lenders, and as a business person, you will need to consider that when you decide what kind of funding you want. An investor can be a reliable source for business advice and may have a strong business network that you can draw on. However, remember that your investors will have specific reasons why they would invest in your startup.

The main motive behind putting money into the business is growing business to make their own money. In case you can show that your business plan or idea will make money, the investor will be interested in your business for sure. Given below are a few reasons that investors look into your business:

Hard data: Crunch the numbers

The first thing that an investor will look for is the data. It is your job to demonstrate to them that your organization will make that goal happen for them. In case your organization has been up and running for a while, you must show that you have had excellent financial performance till now.

Solid business plan

A solid business plan demonstrates to investors that you are serious about your business and have given thought to your plans to make money. Therefore, ensure that your business plan alone is sufficient to convince investors to back you.

A Clear Investment Structure

Purchasing ownership in an organization has lawful implications and investors will need to realize that you’ve effectively viewed those issues. You will have to have a business structure in place that takes into consideration different parties to purchase in. Likewise, you’ll have to have a reasonable arrangement for how the venture will function.

A part of this includes having a reasonable valuation for your business. This is a method for sponsoring up your solicitation for a specific measure of cash in return for a particular measure of proprietorship. It also consists of assembling a stockholder’s arrangement (and perhaps adding a corporate constitution) that sets out the rights of all owners.

How to choose the right investor?

Choosing the right investor goes beyond funding; it’s about finding partners who align with your startup’s stage, sector, and long-term goals to maximize growth and avoid cap table complications.

Understand the various funding choices

Selecting the right investor is a lot more difficult than just trying to obtain the capital you need for your business. This also requires a certain level of commitment from your side. You would need to make a list of what your expectations are before you can approach any particular type of investors you feel is right to fund your business.

Most importantly, you need to understand what they expect and how involved these type of investors would want to be in the company operations. Are you ready to meet their expectations? Ensure that you keep options open for you and find all the details before you make a deal with the wrong person.

Perform Due Diligence

Even though finding the right type of investors can be daunting, all you need to do is search for them in the right place. You can search online and take advantage of many investor databases like the Angel Capital Association, AngelList, or the Angels Den in the beginning.

Another thing that works wonderfully these days is self-promotion. You can participate in community business activities, network, and even write blog posts about yourself and the company. These things can help you have potential investors come to you instead of you going to them.

Make an investor’s shortlist

For enhancing your chances of obtaining funds, it is good to narrow down your list of potential investors to the ones that you feel are more appropriate for you. You can keep the criteria for the list of things like the investor’s reputation, previous partnerships, and mutual connections.

Ensure that you have a list of about 30 to 50 investors that you can put on the spreadsheet along with any other vital and relevant information for easy reference.

Look at your networks

It doesn’t matter which type of investors you choose, each one of them are looking for ways to reduce their risks while lending cash to startups. And this means that they would have more interest in you if they know you or if you have been highly recommended.

Hence, it is better to use your networks to gather all the potential connections with the investors available, and then you can consider the right investor for you and your company. When you have decided this, you can ask the person who knows the both of you to make an introduction.

Perfect your pitch

As soon as you have the attention of an investor, the next thing you need to do is have a perfect pitch to interest them into approving your proposal. If you spend your time and knowledge to prepare, it pays off. Add all the points that would give a proper idea and surety of how the audience would be approached, and how the sales would increase.

Another thing that you need to focus on is to make sure that the starting of the pitch should be so interesting that the entire discussion has the investor’s attention. You should also make sure that your plan is visually appealing; using a flipbook maker or other presentation tool should be sufficient.

Ultimately those who take their time to find the right type of investors for their business, who are both tailored to their particular operational and financial needs, would be able to build the right support required for a long and successful partnership.

Look for investors’ industry expertise

It is essential that you know the industry your investment partner comes from. It’s really smart to observe venture accomplices who comprehend the intricate details of your industry, preferably through involved insight. These financial investors ought to have profound information on how the business has changed over the long run, the market factors that are influencing it now, and where it’s going in the future. When your investors know about your industry, they can give understanding and useful advice to address the market and stay away from pitfalls.

Look for investor’s functional expertise

Investors with financial expertise have authority in some or all of the fundamental abilities related to business and fundraising. Fundamentally, you need your investor to know about what they are doing. So that they can assist with taking your business to a higher level.

In case they are angel investors, check if they have built or sold an organization. Have they previously worked as consultants to new companies or been in the same shoes of being a founder? Assuming that they are firms, do they spend significant time in money or industry-specific analytics? Do they typically assist new businesses with their operational difficulties? Get some information about the investors you are talking with, and dive into their experiences to uncover the worth they can offer you beyond just money.

Track investor’s history/record

An investor with abundant resources might appear extraordinary; however, assuming they lack experience with new businesses like yours, you might be in an ideal situation without their cash. It can be useful to do some examination into their investing history. Have they worked with organizations that resemble yours?

Preferably, you will search for capital firms with a background marked by effective ventures and exits. One method for assessing an association’s history is its gross internal revenue (IRR). Firms with a higher IRR throughout a more extended portfolio are hypothetically more prepared and more qualified to assist you with developing your business. Various firms regularly put forth unique IRR objectives for their portfolios, depending upon the phase of organizations they periodically put resources into. Early phase investors typically focus on a 30% net IRR north of eight years, while some late-stage investors set an objective net IRR of around 20% over a similar period.

Large numbers of successful investors are previous business people who constructed profitable new companies of their own. You can likewise search out references from individuals who’ve recently worked with a specific firm to find out about how they respond when their ventures start to go south.

Investor’s financial records

In the event that you are raising your series A, don’t get self-satisfied. You should as of now be pondering raising your B and C rounds, as well. Who invests in your current round will convey messages to other future investors. What’s more critically, your present investor will likewise be vital for assisting you with tracking down future financing through their organization and shall have enough funds to invest in your finances for the future. There are a huge number of individual investors around the world,  make sure that you consider their financial records before starting to work with them.

Ultimately those who take their time to find the right type of investors for their business, who are both tailored to their particular operational and financial needs, would be able to build the right support required for a long and successful partnership.

Which types of Investors to avoid?

Not all the investors are the same. Hence, it is crucial to examine potential investors with the same due diligence that the investors take in considering the startup options that they would like to fund.

Types of Investors to Avoid

Predatory Investors	investors may attempt to exploit inexperienced entrepreneurs by offering unfair terms or trying to take control of strategic decisions.
Litigious Investors	Investors who are prone to litigation or legal disputes can be problematic for a business. Such investors may create unnecessary conflicts and divert resources away from growing the company.
Investors without Sufficient Capital	. Working with investors who lack the funds they promise can lead to funding shortfalls and jeopardize the business.
Investors with Misaligned Goals	Misaligned goals can cause conflicts and impede the growth and success of a business.

How do I get introduced to investors and where to look?

Understanding the different types of investors and how to approach them effectively is crucial for startup success. The right investor provides more than just capital—they offer expertise, connections, and support that can accelerate your growth trajectory.

Corporate Investors and Strategic Partners

Successful fundraising requires ongoing relationship building. Before approaching investors, research thoroughly to ensure a good fit, develop relationships before you need capital, provide value by sharing industry insights, and build credibility through progress and traction.

During the process

Be transparent about challenges and risks, respond promptly to requests for information, demonstrate coachability and willingness to learn, and manage the process professionally with clear timelines. After securing investment, provide regular and honest updates, ask for help when needed, leverage their networks appropriately, and respect their time and expertise.

Preparing for Investment

Before seeking investors, ensure you have essential documents, including an executive summary and pitch deck, detailed financial projections, market analysis and competitive landscape, product roadmap and development plan, legal entity documents and cap table, and any existing customer contracts or letters of intent.

Build a strong team with experienced co-founders who have complementary skills, key advisors or mentors, clear roles and responsibilities, and a compelling team story in your pitch. Demonstrate market validation through customer discovery and feedback, product-market fit indicators, early sales or user traction, and pilot programs or beta customers.

Get business valuation to find the right investors for your company with Eqvista!

Whether you’re launching a new product, upgrading equipment, or expanding operations, investor capital provides crucial support for growth. The key is understanding which type of investor aligns with your business stage, capital needs, and strategic goals.

Take time to research potential investors thoroughly, ensure alignment on goals and values, build relationships before formal fundraising, prepare professional materials, and practice your pitch. Stay persistent, learn from feedback, and continue refining your approach until you find the right partners for your business journey.

Once you understand investor types, focus on determining your appropriate funding stage and amount, preparing your business for due diligence, building your pitch and supporting materials, starting to network and build investor relationships, and considering whether to engage fundraising advisors or consultants. The right investor partnership can transform your business. Choose wisely and build relationships that support long-term success.

Ready to get started? Create your free Eqvista account today and take the first step toward securing the right investors for your business.