Types of investors

Startups can raise funds from many types of investors. Learn more about angels, accelerators, crowdfunding, VCs, and other types of investors.

This article will outline various types of investors for startups, as well as other ways to finance a startup that do not involve adding investors onto your cap table.

Types of investors:

1. Friends and family

2. Equity crowdfunding

3. Angel investors

4. Accelerators and incubators

5. Venture capitalists

6. Growth equity

7. Institutional investors

8. Corporate investors

Other ways to finance your startup without granting equity to investors:

1. Bootstrapping

2. Bank loans and debt financing

Friends and family

A “friends and family” round is when a startup, typically a very early-stage startup, raises initial capital from the personal network of the founders. Friends-and-family investors are often betting on what they know about the founder rather than what they know about the vertical or industry.

Although this sort of investment may feel more informal, it should be treated the same as any other type of investment from a legal and compliance perspective.

Equity crowdfunding

Equity crowdfunding is the process of collecting small contributions from many people, typically through online crowdfunding platforms. Some crowdfunding websites specialize in fundraising for businesses and can get the pitch out to a large group of general investors ( unaccredited investors included).

Examples of crowdfunding sites include Republic, Fundable, and Microventures.

Angel investors

Often former entrepreneurs themselves, angel investors are typically high-net-worth individuals who invest their own money. They invest at early stages such as the seed or pre-seed stage and write smaller checks than venture capital firms managing pooled investment funds.

Accelerators and incubators

Accelerators and incubators are programs that can provide guidance, mentorship, and access to funding for startups in exchange for an equity stake in the company. Some accelerators and incubators also make direct cash investments in the startups they support.

Venture capitalists (VCs)

A venture capital firm pools outside capital to invest in private companies.

Growth equity

Growth equity firms are private equity firms that focus on later-stage startups.

Institutional investors

Institutional investors are typically large asset managers that can include investment firms like Fidelity and T. Rowe Price, state pension funds, university endowments, banks, hedge funds, mutual funds, and family offices.

Corporate investors

Corporate investors or corporate venture capital (CVC) is a subset of venture capital.

Other ways to fund startup operations

Raising capital through an equity financing is not the only way to obtain the cash you need to build your startup. Other options include bootstrapping or taking on debt financing.

Bootstrapping

Bootstrapping is the process of starting and growing a company using your own resources, without relying on outside capital.

Bank loans and debt financing

Startups, like other small businesses, can also seek business loans to grow. With a loan, rather than selling a piece of ownership in your company and diluting the ownership value, you are instead agreeing to pay back the money to the financial institution at an agreed-upon interest rate.