The United States is the home to different startup businesses. The country has an excellent startup ecosystem, which helps newly started businesses find investors conveniently. According to industry reports, around 40% of startup businesses in the USA have become profitable. Therefore, a large number of startups struggle to become profitable. Failure to find investors is one of the reasons behind the failure to become profitable.
Businesses use different strategies to draw investor attention, through many strategies often fail. Knowing the types of investors is crucial before reaching a potential investor. In the following section, you can find a guide on the different types of startup investors. Knowing them will help you choose the most suitable investors for your business.
1. Angel Investor
According to industry estimates, angel investors spend around $20 billion every year to invest in various startups. On average, angel investors invest around 60000 startups every year. So, searching for angel investors is one of the best ways of obtaining business investors for startups.
Angel investors typically offer investments to startups through loans and stock purchases. Besides funding a business, they provide mentorship to many startups. At the same time, they bring their expertise and skills to help your business grow quickly.
Angel investors often go for high-risk investments, making them more suitable for newly formed businesses. Investing in a new business can be risky, and many investors often do not take the risk. But angels are different, as they are known for their risk-taking abilities.
2. Venture Capitalists
According to industry sources, the United States is home to multiple venture capital firms that invest in startups to boost the country's economy. A recent report says that the overall investment from venture capitalist firms was $345 billion in 2021.
However, it is noteworthy that venture capitalists invest after a thorough risk assessment. Therefore, they reject the investment proposals of many startups. Typically, venture capitalists invest in one startup after listening to the pitches of hundred businesses. On the other hand, angel investors invest in one startup after listening to ten pitches.
Startups often share sizable partial ownership with venture capitalist firms. The firm gets involved in the management decisions. However, it also has some advantages since venture capitalists have their management tools and strategies to improve a business's financial performance.
3. Corporate Investors
Big corporations invest in small enterprises sighting multiple benefits. For example, investing in startups helps corporations diversify their assets. At the same time, it helps them find talents, technologies, and innovative ideas to enrich their production systems.
Finding corporate investors can be challenging for small enterprises. Entrepreneurs should prepare attention-grabbing pitches to attract such investors. However, the most challenging part is finding such investors. Entrepreneurs can use the startup investment app in the USA to find such investors.
4. Startup Investment Through Bank Loan
Another good place to look for business investment is by applying for a bank loan. In the USA, the SBA (Small Business Administration) is the legitimate body to look after startup investments. Entrepreneurs can reach the SBA in search of business loans.
Banks follow a typical and uniform policy to grant loans to businesses. You must have papers ready to apply for the loan. Moreover, the bank has a scrutiny system to check the authenticity of the information provided by the applicants. Your loan application will be rejected if there is a disparity in furnishing personal data.
5. Personal Investors
More than 70% of the startups in the USA initially rely on personal funding. Personal funding means obtaining investment for the company from friends and family members. There are a few drawbacks of personal funding for startups.
From an investor's perspective, personal funding is a more emotional decision in most cases. Investors do not check feasibility and risks before investing money. On the other hand, businesses cannot secure a big investment through personal connections. You need to find a more professional investor who can bring both money and expertise to help your business grow faster.
So, these are the five types of popular investors for startups and small enterprises in the USA. Startups should look for reliable platforms where they can find investors. At the same time, such platforms help investors find investment-worthy startups easily.
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The State of The Crowdfunding Industry
The global crowdfunding market is forecasted to grow by 26.87% during the period 2016-2020.
And this growth refers not just to the popular reward-based model offered by the likes of Kickstarter and Indiegogo, but a few other niches as well:
Here’s a quick overview of how much money was raised in those segments in 2015:
And on a global scale:
As you can see, P2P lending proved to be one of the most popular funding options and netted over $25 billion dollars to prospective businesses.
