Investing in a Seed company:
Newly started companies are classified as Seed companies. There is an idea being worked on by the founder, but there is no turn-over.
These early staged companies' funding tends to come from friends, family, or the founders' own pockets. Investments can range from £1000-£100,000.
These investments are made to support the founder and their ideas without proven profits, so at the riskiest stage.
Investing in a Startup company:
Seed companies are classed as Startups once they have started operations and are collecting payments. At this point, founders may wish to pitch their ideas to investors to raise capital to assist them in growing the company with the use of initial marketing strategies and increased production.
Investments made at this stage are still risky. Still, it should be possible for the Startup to present company data, including turnover and predicted growth figures (using VenCat, for example) which can provide more insight into its potential to produce a good return.
Angel Investors and Angel Groups are the first to invest in Startup companies.
Angel Investors tend to be wealthy private individuals interested in investing in early-stage companies operating in familiar markets.
Angel Groups are becoming more popular; this is where a group of Angel Investors get together, enabling them to share knowledge of a market, invest larger sums, and spread the risk.Investment amounts range from £10's to £100's of thousands, with the potential for high returns.
Accelerators & Incubators provide opportunities for founders to join their investment portfolio and provide funds between £5,000 - £100,000 for startups to use to grow the company. They assist companies by providing knowledge and experience and help them to pitch to investors for a larger investment.
A Venture Capitalist will be looking to invest in a company as it expands. Their investment will be used to produce more rapid growth.
Venture capitalists can still be private individuals but are more commonly a private partnership or investment fund. Investments tend to be in the millions and can trigger the exponential growth of a company.
They will be interested in taking a management role within the company, often joining the board of directors, and could look to sell the company in a few years to get the quickest, most significant return.
As a founder, you will have to accept that VC's may take the majority control out of your hands. However, many founders can accept this fact as the financial payoff can take the sting out of handing over their 'baby'.
The founder can then use funds released from the initial Startup to start another one! Some people make a living creating and selling companies.