What are the different types of investors?

What is an investor?

Investors are people who allocate money and expect a return on their investment. They are people who will finance projects, shares, companies or people with capital.

Investors are going to be useful and vital for companies through their development. Indeed, companies do not always have (especially at their financing) the funds to develop their project, finance research or hire a team.

Calling on investors is in many cases an ideal alternative to self-financing when it is complicated. The investors act certainly by bringing a financial value, but above all by being partners, accompanying the development of the company.

There are generally two types of sources of capital. Banks allow a company to borrow money. The financial markets allow companies to issue shares or bonds.

What are the different types of investors?

Each one has its own particularities, advantages and disadvantages, which means that not all of them can be suitable for a company, especially depending on its stage of development

Investment funds

Venture capitalists, or investment funds, are simply structures managed by people who invest other people's money. The amounts invested in companies by investment funds are generally among the largest.

Usually the amounts are above 500 000€, and can go quite high. They normally occur once the company has demonstrated a potential and attractive market with a certain product or service.

Venture capitalists are looking for a quick return on investment, with a possibility of exit (e.g. IPO) after a certain period of time.

The funds can intervene in the seed phase, in series A or series B, and beyond.

Business angels

Business angels are people who will invest part of their savings in companies, usually at the very beginning of a company.

In France, there are about 4,500 business angels who invest with an average ticket between 10,000 and 20,000 €. There are also federations that bring together these business angels such as France Angels.

Surrounding oneself with business angels at the beginning of one's entrepreneurial adventure can prove to be very valuable, in terms of support and strategy, and can represent a real springboard for the project.

Institutional investment structures

At the regional or national level, there are different types of structures that can finance companies by providing them with certain amounts of capital.

Depending on the level of maturity of the company, the geographical location of its headquarters, or the sector of activity, not everyone has access to the same investments.

At the regional level, they are grouped inUNICER and venture capital firms, and generally take minority or no equity stakes.

However, they can have a real leverage effect on the implementation and development of a project on a regional scale.

At the national level, investors are linked to theAFIC (Association des Investisseurs en Capital) and can bring in larger tickets.

On both scales, these institutes aim to support the regional and territorial economy, mainly by creating jobs and supporting activities.

Crowdfunding

Participatory financing, also known as crowdfunding, is a way for companies or individuals to finance a project, especially at the creation stage.

The project leader will generally carry out an online campaign on a dedicated platform, which allows to collect funds from the general public.

Related to this concept, but aimed at a different audience, crowdequity concerns individuals who seek to invest in young companies, in exchange for a share of the capital. Investors go through an investment holding company to obtain their shares.

This is a fairly quick method of financing and allows you to set a minimum entry ticket (e.g. €10,000), which can add up to a fairly large total amount.

The corporate venture

Corporate venture is simply the investment via funds linked to large industrial companies. These structures support technologies or innovative projects that are related to their own sectors of activity.

In part, these industrialists will invest in projects that respond to a problem they wish to solve, or that complete holes in their activity.

The corporate venture allows the financed company to gain a certain notoriety, as it gains support from industry experts, production and marketing resources, in addition to a financial contribution that can be quite significant.

What are the advantages and disadvantages of the different types of investors?

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Type of investor	Benefits	Disadvantages
Business angels	Very good leverage, no loss of capital and can provide access to capital very quickly, even at the very beginning of the company	Individual financial limits
Regional / national investors	Their strong expertise and contacts on a regional or national scale brings to the company a certain notoriety, notably for future investments	Little support from experts in the medium to long term. Rather long administrative procedures
Crowdfunding/equity	Greater influx of cash for crowdequity than through crowdfunding. The latter allows to create a real community of customers at the initiation of the project	Important return on capital in the context of crowdequity. For crowdfunding, the campaign must be well conducted, which can quickly kill the project otherwise
Corporate venture	Significant amount of money and real validation from the best in the business. Assured support and expertise	Generally a fairly high dilution of shares
Investment funds	Finance the project considerably and benefit from a solid support, as well as a validation of the value of your project	Capital dilution

Where to find investors for a project?

Clearly, there is no rule for knowing which specific project will interest which investor.

The most strategic and serious way is to get information online, on the websites of these investors, or even to discuss with some of them, and even better with other entrepreneurs.

Of course, you will find it easier to find investors for a project once it is, at least, solidly built on paper, with real studies carried out, as well as real background work.

It also depends on your address book and your professional experience.

Be sure of your presentation, be sure of what you are presenting and don't underestimate the first contacts.

Which investors are right for my business?

Obviously, the investors who are best suited to your business are going to be those who can best support and finance you.

The right investors are those whose experience, skills, business networks and industry best match your company.

For example, in the case of business angels, it is more common for them to invest their capital in projects related to their expertise, especially their past experience.

The business angels will be interlocutors with whom you will have much more recurrent exchanges than the regional funds.

Of course, one must also take into account the counterparties attached to the investors. There are some for whom the risk-taking, the exchanges, and the expectations will not be the same. This is also the case for the sensitivity of the information exchanged, or the accountability.

What are the alternatives for investors?

The BSA-AIR

A new investment method works particularly well for young entrepreneurs: the BSA-AIR, known as Bon de Souscription d'Actions par Accord d'Investissement Rapide.

It is a private contract between a company and investors. In concrete terms, in exchange for capital, the company offers investors preferential rates on a future share issue.

This mode of financing is quite interesting because it allows entrepreneurs to obtain capital quickly and economically, since the processes are simpler (legally) and more flexible than a fundraising.

In order to do so, the company must be able to achieve good financial results, and show some growth in development.

The investor obtains preferential prices when purchasing the shares and earns on average a 20% discount. As with traditional fundraising, the company has to give up part of its structure, which can be a disadvantage for future dilutions.

RBF (Revenue-Based Financing)

Karmen's core business is revenue-based financing (RBF) is an innovative form of financing that is based on a company's future revenues. It is called non-dilutive financing because there is no transfer of capital in exchange for the financing.

Karmen is a non-dilutive funding solution that helps digital businesses access instant growth capital. Instead of waiting for online or subscription revenues to be collected month after month, Karmen unlocks the annual value of those revenues, up front. Karmen's solution allows digital businesses to access instant growth capital, within 48 hours, to fund their growth expenses (customer acquisition, marketing, recruiting, technology and more).

To find out if you are eligible for this funding, it's very simple. Simply connect your company's financial tools in read-only mode to our algorithm and find out in less than 48 hours whether you are eligible for RBF or not. If you are eligible, you will be offered a transparent offer with no hidden fees. You can then receive your first transfer within 48 hours. It's simple, fast and efficient!

To finance your project or business, there are several types of financing, at different scales and for different amounts. Depending on the nature of your activity, your level of maturity, but also your professional and entrepreneurial experience, the game is not the same for everyone. So to better manage your financing, find out about the profiles of your future investors and pay attention to the viability and potential of your project.