Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about
the types of investors for startups. There are different types of investors that are
going to be investing in startups. That’s going to range from the angel investors that
you see at a very early stage to all the way to institutionals. There are so many different
profiles and so many different roles. In today’s video, we’re going to be breaking them all
down, giving you every single type of information on every one of those, so that you get a good
idea as to who are those investing in startups and what to expect from them. So without further
ado, let’s get into it. The first is friends and family. Essentially,
those are the people that love you and those that already know you that are not going to
go into a lot of detail or due diligence to understand what you’re up to and to see
if it makes sense or not to make an investment. Those types of investors are going to be investing
anywhere between $1,000 all the way to $200,000. Again, they’re not going to be sophisticated
people, so you can’t expect them to open any doors, make any introductions. Essentially,
they are people that are close to you, that love you, and that’s why they are investing.
Next are the banks and government programs. Banks are the worst, really, when it comes
to giving money for early-stage companies, but you have, on the other end, the government
programs, which is like grants. The beautiful thing about grants is that you are asking
or making an application in order to receive an investment without giving away equity.
It’s a really great thing if you are an early-stage company.
For the banks, typically, they’re going to require that you have revenues that you
have tangible assets. So, for early-stage, the hypergrowth tech-enabled companies are
not the best. Maybe if you go a little bit farther in the journey, if you grow a little
bit more, and you pass maybe the Series B financing cycle where you’re doing anywhere
between $5 million and up in revenues, then banks are going to be a good route. But the
earlier that you are in the journey, the tougher that it is going to be to get those banks
to trust you with their money. Again, maybe the grants are the best solution if you’re
at a very early stage as a startup. Next, you’re going to have the angel investors.
Angel investors are really a fantastic source of investments when you are at a seed stage,
which is the first round of financing that you’re raising besides the friends and family
money. Essentially, angel investors are going to be giving anywhere between $10,000 all
the way up to $50,000 – typically, it’s around $25,000, the average. But you can see
super angels that are investing all the way up to 4 million dollars. Those are called
the super angels. Now, here’s the thing. Angel investors are
not the ones that are on LinkedIn with the “angel investor” title. Angel investors
are ultimately those that are senior executives that can afford to make a very high-risk investment.
Typically, they allocate anywhere between 5% - 10% of their portfolio to high-risk investments,
and, in the end, they are going to be people that can add value. Those are people that
are familiar with your domain and your segment. Maybe they have been an entrepreneur in the
past and did an exit, meaning that their company got acquired in the domain in which they’re
looking to invest in, where they can bring their networks and make a difference. Again,
it’s people that have that domain expertise and that are investing us, individuals, a
small amount of money. Then, you have the angel groups. Angel groups
were a great way for people that were not really connected and that were perhaps senior
executives to come together and share deal flow, and then also take a look at doing their
due diligence together on certain opportunities. Angels groups are interesting because they
invest in different ways. They can invest as a fund. Or they invest with a special purpose
vehicle, where they group all their investors to come in as one as an investment, coming
from one entity, rather than multiple entities, which makes the cap table much cleaner. Or
they can also invest individuals directly if they like what you’re doing.
Here, you have great examples like the New York Angels, the Houston Angel Network, so
there are different angel groups that can actually help here in this segment. But again,
an angel group is just a group of all these different angel investors that are coming
together to make investments. The next is the accelerators or incubators.
Those are really great programs that get involved at the very early stages. You have the Y Combinators
of the world, Techstars, Dream Ventures – there are great, great accelerator programs out
there. Unfortunately, there’s a lot of noise; there
are a lot of accelerators out there that they promise you everything and the moon, but essentially,
they don’t deliver. I would carefully, carefully consider who are the best and the best are
those that have made the most amount of investments and that have the most amounts of exits. That
means that they’re very good at preparing their companies to be successful later on.
Typically, the accelerator programs, what they require is that the entrepreneur moves
into their facility or perhaps attends where they are based or holding those discussions
or those sessions for a period of at least 2 to 3 months. What happens is that they have
all types of experts and advisors that they plugin so that they can help you over time
during that time that you are attending the accelerator program.
They essentially end up with what they call the Demo Day, which is a presentation day
where you come in with your pitch deck, which by the way, you can find the pitch deck template
below that founders are using to raise millions all over the world. Essentially, they grab
the pitch deck, the founders, attend the program, and pitching to a whole audience of investors.
That is Demo Day. The worst accelerator programs are those ones
that bring in service providers. Unfortunately, most of the accelerators besides the best
ones are full of service providers when Demo Day comes. So, you’ve got to be watching
out for that. Typically, the investments that are in an accelerator program is going to
be making in companies, it really varies. It can go from as little as $10,000 all the
way up to $120,000. Accelerators and incubators are not only a great way to receive investment,
but then also a great way to surround yourself with a great network and people that can push
forward to help you in building things in the right direction.
Then you’re going to have family offices. Family offices are the vehicles that have
been started by the typical people that you would see on the Forbes richest, wealthiest
list. The Forbes millionaires, for example. Typically, those vehicles – it only makes
sense to establish when you have available at your disposal at least $100 million to
invest. Again, it’s going to be super-wealthy individuals. These are going to be people
that can invest all the way up to $4 million in one single ticket size. This is going to
be super successful business individuals, people that have inherited maybe from their
parents or grandparents that have money, or people that are senior executives that have
made a ton of money as salary. Again, those family offices have a very interesting
approach. They’re very secretive, and typically, you’re going to need a really killer introduction
in order to gain access to them.” Again, these are the typical people that you would
find on the Forbes richest list. The next is going to be venture capital firms.
Venture capital firms are coming in more likely at the Series A round of financing, which
is where you’ve already been operating your business for maybe like a couple of years,
and maybe you’re shooting for $1 million and up in revenues. Typically, anything before
that is called a micro venture capital firm. Again, those venture capital firms are going
to be investing anywhere between $250,000 all the way up to $5 million. Getting into
a venture capital firm is a little bit difficult. It’s not as easy as going to your friends
and family. Here, you really need to get into the circle of trust. The best way to get into
the circle of trust is by getting a founder of a portfolio company. This means someone
who has received an investment from that investor that you’re looking to target as a venture
capital firm in the last 6 to 12 months and use them to get you in. That would also help
with reducing the amount of time that it takes from the first touchpoint all the way to money
in the bank. With venture capital firms, it is going to
get more intense when it comes to the due diligence process, and it could be anywhere
between 3 to 6 months to close the deal once they’ve shown any type of interest. Again,
venture capital firms are also going to be investing depending on your location, and
also depending on where you’re at in the financing cycle, whether it is an A round,
B, or C round of financing. That’s essentially what it comes down to
regarding venture capital firms. They don’t invest in a lot of deals. Venture capital
firms, especially if you consider the amount of companies that are launching every month.
In the U.S., for example, at least 500,000 new companies are formed every month. Then,
if you benchmark that to the 1,500 companies they receive on a yearly basis, a new investment
from a venture capital firm, it shows you there’s not that much in terms of investments
going on into these companies. For following rounds, we need companies that are getting
a reinvestment from a venture capital firm that invested already in the past. The number
is about 3,000 new companies a year, so it’s small.
What you need to keep into consideration here is that typically, on average, the partner
at a venture capital firm is going to be seeing around 1,000 opportunities a year. Out of
those 1,000 a year, they’re going to be investing in about four companies or so, which
is the four companies where they are able to allocate time in order to sit on their
boards to oversee their investment. Again, time is limited for these individuals, and
that is why they invest in such a small amount of numbers of the opportunities that they
actually see during the year. Then, you’re going to have the corporate
investors. These are large corporations that are either investing directly or perhaps that
they’ve said, what they call the corporate venture arms, where they’ve either established
a fund or where they’re investing from their balance sheet into the company that they perhaps
want to bring into their universe or ecosystem. This is really interesting because what they
want is to get into that innovation that is happening within their segment or domain early
so that they don’t have to wait for down the line. Here, it is quite tricky, as well,
for the entrepreneur because while it could lead to a potential good acquisition down
the line, which means if you’re doing a good job, maybe those people are already part
of your board and part of your inner circle, and they see that if you’re doing a good
job, they’re going to be like, “Hey, we want to acquire this business,” which is
going to be great. But that comes with potential limitations.
What this means is that when these venture capital arms of those large corporate strategics
actually invest in your business, they’re going to also be potentially putting in a
right of first refusal. That right of first refusal from those corporate venture arms
means that whenever you get interest, let’s say inbound interest from someone that wants
to buy your business, if they have a right of first refusal, they can buy it right away
at that same price that you’ve gotten. That’s tricky because if this happens, you’re
going to be completely killing that bidding war – that potential bidding war where you
push the price up giving the competitiveness in getting your company acquired, and that’s
going to be limiting, as well, your exit as a founder yourself.
So, you’ve got to be very careful with those right of first refusals, and that’s why
you typically bring those corporate venture arms on in later stages, maybe like a Series
B financing cycle or later so that you avoid getting those right of first refusal clauses
and other things because ultimately, those larger corporations are a little bit slower,
and they could also slow you down. That’s something to keep in mind.
With that being said, hopefully, you liked this video. Leave a comment and let me know
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Thank you so much for watching.