Types of Investors & Roles for Startups

Types of investors

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

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Startups often raise capital to build and scale their businesses. This financing can come from myriad sources—and as the entrepreneurial ecosystem has grown, so has the variety of investors startups can work with. That can include angels, accelerators, crowdfunding investors, venture capitalists, corporate and institutional investors, and more.

Different types of investors invest at different stages of company development and have different risk profiles. Generally, investors receive equity—partial ownership in exchange for the money they put into the business.

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 raises initial capital from the personal network of the founders. Friends-and-family investors often bet on what they know about the founder rather than the vertical or industry. This type of investment should be treated the same as any other type of investment from a legal and compliance perspective.

The ability to raise money from friends and family is not available to all entrepreneurs and may contribute to continued inequity in the startup ecosystem.

Equity crowdfunding

Equity crowdfunding involves collecting small contributions from many individuals, often through online platforms. Some sites specialize in fundraising for businesses, reaching a broad range of investors (including unaccredited investors). Examples include Republic, Fundable, and Microventures.

Angel investors

Often former entrepreneurs, angel investors are typically high-net-worth individuals who invest their own money at early stages. Their investments may come in the form of convertible instruments, like SAFEs.

Angel syndicates

Angel investors sometimes form a syndicate, pooling resources to make single investments through special purpose vehicles (SPV).

Accelerators and incubators

Accelerators and incubators provide guidance, mentorship, and access to funding in exchange for equity stakes. Some also make direct cash investments.

Examples include Y Combinator and Tech Stars.

Venture capitalists (VCs)

A venture capital firm pools outside capital to invest in high-growth startups. Members, called general partners (GP), manage investments from limited partners (LP).

Growth equity

Growth equity firms focus on later-stage startups, seeking maturity metrics like revenue growth.

Institutional investors

Institutional investors include large asset managers and venture capital funds. They may also invest directly in later-stage companies.

Corporate investors

Corporate venture capital (CVC) involves large companies investing in startups, often inrelated sectors of their core business. Examples include Intel Capital and GV.

Other ways to fund startup operations

Exploring options beyond equity financing includes bootstrapping or seeking debt financing.

Bootstrapping

Bootstrapping involves using personal resources to grow a company. This can include personal savings or reinvesting early profits.

Bank loans and debt financing

Startups can also seek business loans instead of diluting ownership. This method is known as “debt financing.”

Author: The Carta Team

Carta's best-in-class software, services, and resources are designed to promote clarity and connection in the private capital ecosystem.