Depending on a company size, needs, and industry, there are many types of available capital partners. This post outlines several different types of financial partners available to companies.
Angel Investors are generally wealthy private individuals who invest in pre-revenue companies. They are may invest individually or as part of a fund or larger organization or network focused upon seed level capital. Investments from Angel Investors are generally less structured than investments from Venture Capital.
Venture Capital Investors have funds that invest in companies with specific characteristics such as industry, company size, investment size, and geographic location. Venture Capital investments are generally highly structured products with extensive governance provisions, consent rights, and liquidity preferences. Venture Capital investors will often hold their investments for a set period of time and expect an exit by the end of that period.
Small Family Offices
Small Family Offices are similar to Angel Investors, but may manage their own capital as a fund. A family office manages either a single family’s wealth or a small number of families’ wealth. Family Office Investors are often more flexible and patient than Venture Capital Investors as they are investing their own capital, and generally do not require extensive governance provisions and consent rights.
Friends & Family
Earlier stage companies often raise capital from friends and family. Individuals with whom a founder has an existing relationship are often more likely to invest in a business at the idea or pre-revenue stage than an angel investor. Having friends and family invest in your company can, however, be tricky if things do not go well.
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Crowdfunding is a way for unaccredited individuals to invest in your company. Crowdfunding can make larger capital raises and exits much more difficult later on due to the large number of unaccredited investors in the company. Crowdfunding a product through a platform like Kickstarter can, however, be a great way to get startup funding without giving up equity.
Investment Banks actively seek all types of investors, including institutional investors and retail investors. Investment Banks will consider many transaction structures such as private placements or public offerings depending on, among other things, a company’s size and needs.
Alternative Commercial Credit
Alternative Commercial Credit providers are either family offices, funds, or other lenders that invest in emerging growth companies or companies not qualifying for mainstream commercial finance. Compared to traditional bank loans, Alternative Commercial Credit providers are more flexible and offer a variety of transaction structures such as term loans, factoring, receivables financing, inventory financing, among many other structures.
Strategic investors are investors in similar or connected industries and may invest in earlier stage companies as a result of their desire to access technology, their desire to build a commercial relationship or other reasons.
Private Equity investors are similar to Venture Capital investors. They too invest in companies based on specific criteria, and generally offer very structured financial products. Private Equity investors generally invest in larger and later stage companies than Venture Capital investors.
Hedge Funds are relatively large diversified pools of capital generally investing in more liquid investments, such as stock, bonds, options, futures, and commodities. Many Hedge Funds do, however, allocate capital to what are known as “side pockets”, where a portion of their available investment funds can be utilized for special situations or projects, such as earlier stage, illiquid investments.
There are many funds that are more specialized and which may provide capital to companies prior to or following a public listing. Transitional Capital funds, for example, invest in companies transitioning from being private to obtaining a public listing. Likewise, PIPE (private investment in public equity) and special situation funds may invest in earlier stage companies from time to time.
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We are always happy to discuss the funding and growth options available to a company. Please use the contact form below and a member of our team will be in touch shortly.