You know what turns a billion dollar idea into a billion dollar business? Money. For startups, capital is the one thing that stands between their vision and reality. While VC funding and bank loans were the most sought-after fundraising alternatives, now the pool has gotten much bigger for startups in India.
We have listed 7 types of startup investors who will fund your company based on your growth stage. By the end of this blog, you’ll understand the 7 types of investors for startups and their roles in startup growth.
Why does choosing the right investors for startups matter?
Funding is no longer about just securing money. Investors now are advisors bringing industry knowledge and networks that money alone can’t buy.
Indian startup investors are now playing a more active role by providing funds and extending their expertise to help the startups grow. Therefore, for startups, finding the right investors based on their startup stage can help them establish a strong market presence, get expert guidance, and have access to an industry network.
7 Types of Startup Investors for Funding your Company
Each investor has resources and the skills that help a startup grow. Therefore, understanding different types of investors for startups in India is crucial. The following are the 7 types of startup investors you must know as an entrepreneur.
1. Friends & Family
When you want to find investors for startups, you can start with the ones closest to you: your friends & family. When a startup is in its early stage, such as the pre-seed or seed stage, entrepreneurs often turn to friends and family for funding. As per a survey of 1246 startups by the RBI, friends and family are the primary source of funding (source). They often aren’t able to provide other support to a startup.
You can raise funds through a loan or by offering some equity. Find family members and friends who can understand your vision and are willing to provide you with some investment. However, you should be careful with who you choose to raise funds and set up legal documents to record the transaction because mixing personal relationships with business can be risky.
2. Angel Investors
Angel investors for startups are often the first external investors. They provide funding and support to early-stage startups with their expert guidance and accessibility to their resources and network. The angels make a risky investment to support innovative ideas and are one of the key drivers of the startup ecosystem.
Angel investors are often HNIs or industry experts who want to support early-stage startups with innovative ideas and the potential to get higher returns. You can connect with Angel Investment Networks like Indian Angel Network, Mumbai Angels, and IVY Growth Associates to access a group of angel investors based on your funding and expertise needs.
3. Incubators & Accelerators
Incubators and accelerators are institutions (often government-backed) that support the early and growth stage startups to learn the ropes of managing a startup, especially for entrepreneurs with no business background.
- Incubators provide co-working spaces, expert support, and testing labs to help early-stage startups grow and build a reliable business model. These incubators offer grants and fundraising opportunities to their members.
- Accelerators support the growth stage startups by providing them with the necessary resources and mentorship. They often give funding in return for a small equity stake.
4. Venture Capital
Venture capitalists are one of the traditional large-scale startup investors in India. They primarily invest in established startups with significant traction. They offer hefty investment and expert guidance in return for the equity and a place on the board. With VC funding, you can easily enter larger markets and navigate new markets. In recent years, there has been a rise in early-stage venture capital investors focusing on promising startups in the seed or growth stage.
5. Corporate Investors
Large corporations invest in innovative startups to leverage the innovation and stay ahead of the competition. Their corporate investments are focused on startups in the same niche or complementary products/services to enhance the existing business. Through corporate funding, the startup gets access to resources and markets to boost its growth and increase the chances of acquisition in the future for exit.
6. Retail Investors
Retail investors are individuals who invest their personal money directly instead of an institution. Retail investors for startups in India play a vital role when they want to raise funds without significant equity loss. For example, crowdfunding is one of the most popular fundraising methods, and retail investors can provide funds in return for equity or rewards. Stocks or IPOs are another way of raising funds from the retail investor.
7. Government Grants
The Government of India has played a vital role in making our startup ecosystem the third-largest one globally. Government grants and subsidies in diverse sectors are crucial to support innovative startups in the early and growth stages. Government grants don’t need equity dilution; thus, it is one of the best fundraising options for startups.
How can you find investors for startups?
Are you wondering how to get startup investors in a competitive market? By Networking! Networking can help you build a brand image and find reliable investors and references to increase your chances of securing funding. 21BY72 organizes Bharat’s leading startup summit, where investors and startups from around the globe gather to network, showcase their startups, and raise funds. There is a special pitching event for early-stage startups to attract investors. Explore our website to get insights into the 4 successful seasons of our startup summit.
Conclusion
The fund is the fuel that keeps your startup sailing. Therefore, finding reliable startup investors is critical for your company’s success. We discussed the 7 types of investors for startups that can fund your startups and provide you with the necessary guidance and resources to boost your growth. Friends & family, angel investors, and incubators are popular for early-stage startups, while VC firms, accelerators, and corporate & retail investors are ideal for the growth and maturity stage. Government grants provide no-equity funds to innovative startups. Build your network with investors by attending startup events such as
Bharat’s leading startup summit by 21BY72!
FAQs
1. How to find investors for startups in India?
You can find Indian startup investors by attending networking events, connecting with investor networks (like angel networks) or incubators and accelerators, and being active in entrepreneur and startup spaces. Focus on sharing insightful information and your achievements with the investors to build a strong network.
2. How to pick the right investors for startups?
When choosing the investors, focus on what you have in common and their market reputation. The investor’s expertise, mindset, and values must align with yours to create a long-term, harmonious relationship. Too many conflicts can affect a startup’s growth and reputation.
3. What’s the difference between VC and angel investors for startups?
The primary difference between angel and VC funding is the startup stage and funding. Angel investors for startups focus on the early stage, while VCs invest in growth or maturity-stage startups. Angel investors often provide small funding, while venture capital funding is a large sum with a significant position on the board.
4. Is crowdfunding legal for startup funding in India?
Yes, crowdfunding is legal in India. However, you must choose a reliable and transparent platform to avoid legal conflicts.
