The first type of investor entrepreneurs should be approaching at the very beginning are friends and family and close personal contacts. At this stage there is very little hard evidence and proof to base a real investment or funding on. They are essentially investing in the idea, and far more importantly - you. These are the people that already know you, like and trust you and believe in you the most. This type of investor may not provide a lot of money. It could be in the range of $1,000 to $200,000. Though if you can’t raise money from this group, other investors are probably going to ask themselves why.
Banks & Agencies
These aren’t true investors like the others on this list, but they can be sources of capital. Traditional banks are generally not an easy source of capital for early stage startups and small businesses. However, as you gain traction they may offer business credit cards, lines of credit and merchant advance loans.
There may also be government programs providing grants for certain types of projects. That doesn’t mean that bringing in this type of capital will be any easier, and loans require repayment, often when you really need as much liquidity and slack as possible. They won’t require giving up equity in your company, but they can impact your profitability, which may show up when you try to raise money from other investors later.
One thing to note about government programs is that in many instances the come with certain restrictions and limitations which may be burdensome for startups. With this in mind founders should review very carefully what those expectations are.
Professional angel investors are normally approached when it comes to the seed round and beyond. They are willing to fund smaller operations than VCs, may be more flexible in terms, and can offer a lot of value in wisdom and connections.
Angel investors can be approached directly online, at live pitch events, and through introductions from other startup founders.
Angel groups have been increasing. They have become more popular and more organized. These are groups of angel investors who band together to make investments in startups. This enables them to invest with more confidence, with larger check sizes, and with lower exposure to risk.
Accelerators & Incubators
These vehicles can ultimately be a gateway to a variety of the types of investors on this list. If accepted into one of these programs you may receive anywhere from $10,000 to $120,000 in seed money to cultivate your idea and gain traction, while benefiting from additional knowledge and resources. If everything is going well, you’ll be pitching larger investors and be introduced to funding sources during their demo days that can help take you to the next level. Just be ready to hustle, these programs want to speed you on the way to the next stage quickly.
VENTURE CAPITAL FIRMS
VCs are the holy grail of investors for fundraising entrepreneurs. They come with the biggest checks, the most power to fuel success and gaining market share, and most juice when it comes to achieving more credibility and visibility.
More venture capital firms are looking at and are participating in earlier funding rounds. Though it is much more likely these investors will show up and be secured in Series A, B and C fundraising rounds than earlier.
Do note that not all of these firms are created equal. The best match can be influenced by location, the timeline of their funds, their interest and expertise in a certain field, their power to help you get to the next stage and of course, how they treat their founders.