5 types of investors that give money to young companies in Nigeria: What to know and how to approach them
The bulk of young businesses depends on investors to fund their new endeavours. The investor’s money can be a huge help to the business, whether it’s expanding operations, introducing a new product, or improving existing machinery.
Who is an investor?
Any person or organization that makes investments with the intention of profiting from them is referred to as an investor. Investors depend on a variety of financial instruments to provide a rate of return and accomplish important financial objectives like saving for retirement, paying for a college education, or just accumulating additional wealth over time.
There are many different investment vehicles out there, including stocks, bonds, commodities, mutual funds, exchange-traded funds (ETFs), options, futures, foreign currencies, gold, silver, retirement plans, and real estate. Investors can examine opportunities from a variety of angles, and they frequently aim to minimize risk while maximizing benefits.
Types of Investors
There are different categories of investors, each with their own resources, skills, and goals. Additionally, you might favor one type of investor over another depending on the plan, the amount of cash needed, and the size of the company. Additionally, the company’s preferences would change over time, as well as its progress.
Investors are actually one of the most significant participants in the company’s operation, and the extent and quality of their involvement determine the success or failure of the business. Understanding the different types of investors is crucial in order to choose which to contact and how to approach the right one.
- Personal Investor
Most business owners rely on close friends, family, or relatives to help them out by making early investments in their company. These are the types of investors, and while they can aid in financing, there is a cap on how much they can put into your company.
It is often easier to convince a family member to help you, but there is a lot of paperwork to complete and they might be taxed as well. Therefore, if you plan to work with a personal investor, be sure to speak with a lawyer first to avoid any complications.
- Angel Investor
Angel investors are those who make investments in start-up companies or aspiring business owners. Most people have heard of this type of investor because it is the most well-known. Even the business owner’s friends or relatives can become angel investors.
Angel investments often offer far better terms than other types of investment, whether they are one-time funds for the company to push or continuous investments to support and urge the business ahead in its early stages. The reason for this is that instead of focusing on the company’s profitability, they invest in the entrepreneur who is beginning a business. In conclusion, they are always more interested in helping startups succeed than making money off of them. Business angels, seed investors, private investors, angel funders, or information investors are other names for angel investors.
- Venture Capitalist
An investor who finances businesses with the potential for long-term growth is known as a venture capitalist (VC). Common venture capitalists include investment banks, affluent individuals, and other financial institutions. In exchange for stock in the company and a voice in the company’s decisions, they often invest in businesses they think have the potential to grow. These investors are popular with firms because they offer access to open capital as well as educated and professional advice.
A venture capital transaction involves the creation and sale of significant portions of the company’s ownership to a select group of investors through separate limited partnerships established by venture capital companies. Sometimes a group of enterprises with similar products or services forms these alliances.
The primary variation between venture capital deals and regular stock agreements is that VC deals frequently concentrate on expanding businesses that are looking for a sizable amount of cash for the first time. Therefore, this is a wise choice if you desire a sizable number of money for your firm along with long-term expertise and understanding.
The traditional source of business credit is banks. You must present evidence of a revenue source or collateral before your application is authorized. Banks are therefore frequently a preferable choice for established enterprises; however, you don’t have to be a billionaire to obtain finance.
- Others (Peer to Peer Lending)
Lenders who lend money to small business owners are known as peer-to-peer lenders. However, the owners must submit an application to businesses that focus on peer-to-peer lending in order to obtain this cash from these kinds of investors. Lenders will determine whether or not the company is a good fit for their investment after the company approves the owner’s application.
Read Also: How to start an angel investment company in Nigeria
Characteristics of the Types of Investors
Although every person has a different investment profile and investing preferences, investors can be categorized into three basic groups according to the level of risk they are willing to take. There are various types of investor profiles. The three types of investors are as follows, depending on their level of risk tolerance:
- The Conservative Investor
This type of investor’s top priority is the security of his or her capital. He is unable to suffer a loss on his initial investment. He is therefore a low-risk investor who would probably sleep poorly during a volatile market period. A low-risk investor will therefore probably be happy with debt goods. His expectations aren’t too great, therefore he doesn’t mind the likelihood of modest capital growth with stable returns.
- The Balanced Investor
In order to improve the value of his fortune, this person is willing to take a small amount of risk. He will therefore be less sensitive to volatility than a careful investor, but he won’t be willing to put money into high-risk assets in exchange for larger returns. A medium-risk investor aims to strike a balance between growth and stability. His investment portfolio will be made up of both equity-oriented securities that invest in reputable companies and debt-oriented products for stability.
- The Aggressive Investor
This person can handle the short-term volatility of the market, as suggested by their name. To attain more growth, he or she is not hesitant to expose his portfolio to severe risk. An aggressive investor is more eager to take on risk than a low- or medium-risk investor, which is the main difference between them. These investors are also willing to choose leveraged products like derivatives of stocks and other asset classes because they have a competitive investor profile.
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