An overview of relevant investor types
Equity investments can come from different types of startup investors, which differ in their focus and goals. Relevant startup investors include:
- Business Angels,
- Venture Capital funds (VC funds),
- accelerators and
- strategic investors.
Business angels and Venture Capital funds represent traditional sources for equity investments and demand high returns. In contrast to business angels and Venture Capital funds, accelerators and strategic investors do not solely focus on financial return from their investment.
Overview of equity investors
Business Angel
- Investors investing with their own assets
- Industry-specific know-how and network
- Extended team member and possibly board member
Venture Capital funds
- Institutional investors, traditionally investing with funds
- Usually later entry (compared to BA), high return expectations
- Are granted extensive rights of co-determination
Accelerators
- Institution to support ventures and accelerate their development
- Support not only with capital, but also with knowledge, time and network
Strategic investors
- Investment rationale: Improving market position
- Often competitors, customers, suppliers etc.
- Synergy over return: Long-term interest in full integration
Business Angel
Investment location
BA prefer to invest locally, oftentimes within an hour of their place of residence
Investment focus
schwerpunkt
Tend to invest in industries in which they can leverage their expertise and network
Approach towards
startups
Mostly via personal intro or a BA network, also through trade fairs/ events, and incubators
Investment amount
Initial ticket sizes can range from € 10k up to € 500k
Watch out for „Business Devils“ who request money before becoming a financing partner
Examples
Venture Capital funds
Investment amount
Often starting around € 500k, with a trend to earlier and smaller tickets during the Pre-Seed stage (from € 50k) (See also Lifecycle of a VC Fund )
Seed Round
Proof of the business model, € 0,5-2m investment size, suitable for seed funds and micro VC funds
A-Round
Proof of scalability, € 2-10m investment size, suitable for large VC funds
B-Round, C-Round, etc.
Proof of being able to become (global) market leader, € 10+m investment size, suitable for large VC funds and PE companies
A VC fund specializing in your company‘s industry may help growing an industry-specific network
Examples
Accelerators
Acceleration
Goal of the accelerator is to accelerate the development and success of the venture in a limited period
Focus
Due to the specific nature of their coaching, accelerators often focus on ventures with certain business models, technologies or target groups
Investment
Accelerators do not only invest capital but also time, knowledge and network into the ventures
Stages
Accelerators mainly support young ventures between ideation and seed stage
In contrast to BAs or VCs, accelerators offer extensive coaching to further support the venture
Examples
Strategic investors
Heterogeneous investment profile
Motivation/ Rationale to be examined individually
Goals
Strategic investors typically pursue different goals than financial investors, e.g. transfer of technology or know-how instead of focusing solely on return
Intention
Strategic investors usually do not have a primary exit goal but rather aim for full integration (chance for higher valuation due to strategic premium)
Return
Due to their strategic interests, strategic investors demand a lower financial return
In order to collaborate with the most suitable investor, it is key to fully understand their strategy and long-term incentive
Examples
Investment strategies for startups: risks and opportunities
In the following, we present 11 more strategies in which investors invest in startups:
Value Strategy
Value investing is a commonly used strategy to invest in startups. This strategy is based on creating value for the company. The investor looks for companies that are undervalued and in which he can create value. This strategy is riskier than others as the investor has to bet on the right company to make a profit.
Buy and Hold Strategy
Buy and hold strategy is an investment strategy where the investor invests in a company and holds it for a longer period of time. This strategy is less risky than value investing because the investor does not have to bet on the right company. However, the investor can still lose money if the company performs poorly.
Syndicated investment
A syndicate investment is an investment that is made jointly by several investors. This is a low-risk strategy because the investor spreads his risk among several investors. The disadvantage of this strategy is that the investor has less control over their investment.
Private placement
In a private placement, the investor invests directly in the company. This is a risky strategy because the investor has no other investors to help him spread his risk. However, the investor has full control over their investment.
Equity Crowdfunding
Crowdfunding is an investment strategy where the investor invests in a company and holds it for a longer period of time. This strategy is less risky than value investing because the investor does not have to bet on the right company. However, the investor can still lose money if the company performs poorly.
Asset Strategies
Investment startups are companies that invest in other startups. This is a low-risk strategy because the investor spreads their risk across multiple companies. The downside of this strategy is that the investor has less control over their investment.
Portfolio investment
A portfolio investment is an investment in multiple companies. This strategy is less risky than investing in only one company because the investor spreads his risk over several companies. The disadvantage of this strategy is that the investor has less control over his investment.
Growth Strategy
Growth strategy is a commonly used strategy to invest in startups. This strategy is based on creating value for the company. The investor looks for companies that are undervalued and in which he can create value. This strategy is riskier than others because the investor has to bet on the right company to make a profit.
Income Strategy
Income strategy is an investment strategy where the investor invests in a company and holds it for a longer period of time. This strategy is less risky than value investing because the investor does not have to bet on the right company. However, the investor can still lose money if the company performs poorly.
Speculative strategy
The Speculative strategy is an investment strategy where the investor invests in a company and holds it for a longer period of time. This strategy is less risky than value investing because the investor does not have to bet on the right company. However, the investor can still lose money if the company performs poorly.
Startup investors: overview of different strategies
There are different investment strategies for startups. The best strategy depends on the investor's goals and risk. Some strategies are riskier than others, but all have the potential to lose money. The investor should carefully consider before investing in a startup.
Wenn Sie mehr über darüber erfahren möchten, wie Sie den passenden Investor finden, lesen Sie unseren umfassenden Leitfaden zu diesem Thema: Finding investors: finding the right investments and investors for your venture
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