Investing in a startup is a matter of strategic thinking. Indeed, the contribution of capital constitutes the real engine of the company. Without a source of funding, the startup is exposed to the risk of going bankrupt quickly, its sustainability is, in fact, uncertain. However, the type of investment in a startup, which aims to meet the needs of the startup, varies according to its degree of maturity.
What are the different types of investors to consider?
Depending on the need for fundraising, startups should focus on a specific type of investor. To save time, it is essential to target the right investor when starting the process of raising funds.
Manufacturers, large companies, operate in a sector of activity similar to the one in which they invest. Their goals? Have a global vision of the startup’s activity to be well positioned when it takes off in order to proceed with a possible takeover.
Business Angels, such as the Nigerian banker Tony Elumelu, investors in a personal capacity, aim to financially support a startup whose project is distinguished by its innovative character. In addition to their heritage, Business Angels provide startups with their professional experiences as well as their skills in the entrepreneurial sector.
VCs (Venture Capitalists) are made up of financial companies. They aim to realize capital gains and hope to obtain significant gains.
Which investor should the founder of a startup turn to?
Startups, like a traditional business, are subject to different stages of development. Prospective investors differ according to the degree of maturity of the latter.
In the seed stage, Business Angels, crowdfunfing and seed funds are fine. The search for investment is justified by the need for financing for the marketing of a product, for example. To inject funds into the startup, investors impose certain criteria: project and business model in adequacy, time to market, credible team and differentiation from the competition.
The skills of this type of investor allow startups to consolidate the foundations of their business. Their motivation? The entrepreneurial adventure.
VCs, venture capital funds and industrialists grant funding only to minimally developed startups. Even without any profitability, the startup interested in this type of financing must be able to prove that the project and the associated business model are viable.
Venture capital funds, VCs and manufacturers only offer their financial support under certain conditions: strong growth potential, possibility of exit after a period of 5 to 8 years, credible team, presence of ” even low turnover, market traction demonstrated with metrics, differentiation from the competition and obstacles to overcome. Unlike VCs, manufacturers do not aim to obtain significant valuations.
What financial capital can investors bring and under what conditions?
Manufacturers generally invest between € 300,000 and € 800,000. Their goal is to provide startups with the financial means to build a competent and solid team to demonstrate the viability of the business model. In terms of equity investments, manufacturers have lower prices than those charged by VCs or BAs. Indeed, their investment strategy allows them to benefit from tax exemption.
Business Angels invest, most of the time, small amounts in several startups. Their shareholding constitutes, on average, between 25 and 30% of the capital. The tickets offered vary between 5,000 and 10,000 euros per round.
VCs, meanwhile, are under economic pressure. Their obligation? Leaving the startup with added value. This must be obtained over a period of less than 10 years. Their initial investment starts at a minimum of 1 million euros.
Unfortunately there is no such thing as an ideal investor. The contribution of capital to a startup must be considered, by its founder, as a lever for the development of the structure. This is by no means an objective.