Chapter 2 – Understand the Investors

In previous chapter you learned about the characteristics an entrepreneur should have to be successful and how being a woman may help or challenge you on this journey. We also talked about the 9 components of business model you should think about before opening a business.

In this chapter we will find out who investors are and what are the differences between different types of investors. We will also learn how to reach them. In addition we learn about the role of an investor in your company and find out why entrepreneur-investor relationship is often compared to marriage. However, with one exception: marriage with the purpose to successfully divorce.

MAIN OUTCOMES OF CHAPTER 2:

Investor - anyone who commits capital with the expectation of financial returns.

Types of Investors

Active

Their primary concern is the product. They believe in why you do what you do. You can contact them directly for help in anything you may need.

• Angel investors - individuals with an income that exceeds $200,000 or who have a net worth of more than $1 million. They are found across all industries and are useful for entrepreneurs who are beyond the seed stages of financing but are not yet ready to seek out venture capital.


• A corporate investor - a company that invests in other companies. Or acquires control of them. In other words, it’s either a company created to conduct business, or a raider, which is a type of investor who intends to take over a company by buying a controlling interest in its stock and installing new management.

Passive

Their primary concern is function and return on investment. You contact them indirectly, through a professional, who manages Passive investors’ capital.

• Peer to peer / Personal investors - Friends, Family, Pension funds


• Endowment or Foundation
  
  
  
  • Banks
  
  
  • Venture capitalists - used only after a business has started to show a significant amount of revenue. They usually invest a substantial amount of money (often around $10 million).
  
  
  
  


• Fund of Funds - an investment strategy in which a fund invests in other types of funds. This strategy invests in a portfolio that contains different underlying assets instead of investing directly in bonds, stocks and other types of securities.
  

How an angel investor can help you to succeed:

• Improving business models


• Improving company’s strategies


• Developing ways to reach your customers


• Suggesting growth methods suitable for you, e.g:
  
  
  
  • The Viral Engine of Growth, which is word of mouth or viral invite system
  
  
  • The Paid Engine of Growth, which is when you pay for each customer through ads or marketing systems
  
  
  • The Sticky Engine of Growth, where you keep customers engaged over the long term and reduce churn
  
  
  
  


• Helping to balance the portfolio of your products to mitigate risk of failure


• Helping you to raise further capital


• Helping you to prepare for your possible exit


• You can take advantage of angel’s business network to help you grow faster