Tip: Understanding the Influences on Angel and VC Investors
The influential factors for investors are varied and complex, which is why, as a founder seeking funding, it can be hard to identify the traits investors desire. In this post you’ll find a brief insight into the perspective of Angel and VC investors, helping you identify a route to the funding you need.
The VC perspective
As professional investment companies, Venture Capitals (VCs) are deeply committed to the success of their ventures. Taking a more hands-on approach to nurture the growth of their investments, VCs can be heavily involved in developing businesses to create returns on their investments.
Managing a pooled fund from institutional investors including pension funds, insurance companies, endowments, foundations, family offices, and high net worth individuals; VCs fund young, innovative companies with extraordinary potential for medium to long-term growth.
The Angel perspective
Operating individually, angel investors are high net worth individuals seeking returns on investments from their personal funds. Just like on Dragons Den, the individuals investing will usually seek the assurances of stable companies and existing turnover before committing to invest.
Typically avoiding lower yields (i.e. longer periods of time before the initial investment is returned), angel investors can be more conservative than VCs. But the crucial difference is that Angel investors are unlikely to be as intimately involved with the running and support of investment properties as VCs.
What kind of businesses gain funding?
The recipients of investment from both VCs and Angels are as varied as the companies and individuals investing. Though there’s no specific destination for funding, there are common industries that see the majority of investment. They tend to be those that involve high levels of innovation, and that can benefit most from disruption of the status quo.
Typically the businesses that receive funding are high technology companies, specialising in industries such as software, biotechnology, media, medicine, wireless communications, entertainment, digital media and networking. Increasingly, investments are also being made in green industries such as renewable energy, environmental and sustainable technologies, and power management.
That’s not to say more traditional industries are ignored; companies involved in consumer products, manufacturing, financial services and business products or services also regularly receive investment funding. However, despite the wide range of business types, there are a few common traits among all successful venture funded companies.
Young companies are more desirable
Nothing spells potential like youth. Start-ups can be highly desirable for investors. Not only is the initial investment likely to go further, the business impact of early-stage investment is usually greater, leading to healthier enterprises.
For VCs, getting involved earlier means they have the ability to help sculpt more profitable companies from the outset, lending their expertise in creating swift to-market strategies to enhance the prospects of the company. That increased profitability and pliability is a major influence that can swing a decision for investment.
Innovation is a must for investors
When investing, investors have to consider the competition and market. In cases where a good idea has already been executed (and well) small enhancements on that approach are unlikely to pay dividends. The issue is the ability of established companies to integrate even the most brilliant innovations into existing products.
To combat this, investors are likely to go for the most original and disruptive business ideas. The higher levels of innovation make it harder for major corporations to follow suit, meaning start-ups get a head-start in carving out a market position before they are suffocated by bigger brands.
Scalability creates room for growth
No matter how innovative and youthful a company may be, if there’s no room for growth, investors won’t touch it. Scalability means there are fewer hurdles to expansion; so crossing borders into greener pastures and amassing larger audiences is simpler and more rewarding.
If there’s potential for a larger consumer or client audience, investors will be tempted; particularly if that audience isn’t currently tied to a similar solution. Globalisation is a loaded word, but – particularly with digital products – international expansion is easier and less expensive, promising incredible profitability for the right businesses.
Investment is far from assured even if your company has all of the above, but it’s much more likely when they’re present. If you think your digital business idea has what it takes to pique the interest of investors, show us what you’ve got here.