5 Types Of Small Business Private Investors (Guide For 2023)

Your company's success or failure depends on the type of small business private investors you pick. You could have a big business plan, a compelling business model, or a great team but without the boost of the right investment capital, your business will not grow. 

Investors play a crucial role in the process of business growth, and their engagement in your company can impact its exponential development. No matter what stage of development your business is in, there are various avenues for raising capital. But knowing what kind of investment funding you require is important since it will determine how you approach potential investors.

In this article, we’ll be looking at five types of small business private investors. By the time you’re done reading it, you’ll know which investor type is best for your business and how you can pick the right private investment funding for your big business idea or company. Ideally, with smart money investors.

Let’s dive in.

5 Types Of Small Business Private Investors

Let's take a look at the five most popular private investment types so you can make decisions that will help your company succeed.

1. Angel Investors

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Angel investors are successful, high-net-worth people who normally invest their money in companies they are enthusiastic about, especially the ones that might find it challenging to secure more conventional sources of funding. A lot of people in the angel investment network are successful entrepreneurs, corporate executives, and other types of business professionals. 

Angel investors usually provide:

• Mentorship 

• Business loans

• Business advice

• Business strategies

• Investment against shares or stocks

Business angel investors usually seek partial ownership in your business or a role in management in most circumstances, while in others they may only require a percentage return on investments. Angel investor agreements frequently range in value from a few hundred thousand dollars to several million.

Pros Of Angel Investors

• They have no issues with funding start-ups

• They do not request their invested funds if the business doesn’t work out

• Angel investors are willing to take risks with any business idea or company

• They invest more than money in your business, they also bring solid business strategies to the table 

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• Unlike banks, angel investments are not treated as loans, but as investment funds paid back with stakes in your business

• They are comfortable extending business investments to companies operating in practically any sector and any location

• They provide you with networking opportunities, connecting you with other private individuals willing to invest in small businesses

Cons Of Angel Investors

• You no longer have complete control of your business activities and the allocation of funds

• Given the amount of time required to negotiate the terms and conditions, the funding may process slowly

• Angel investors tend to have high expectations from business owners due to the amount of risk they take in investing

• Most of the time, finding an angel investor relies on your personal and business connections that can introduce you to them 

How To Find Angel Investors

Finding angel investors is made simpler by modern networking and crowdfunding platforms like Micro-ventures, AngelList, and Gust. Various members of the angel investment community can be found on these platforms looking for startups and ideas to fund. All you have to do is submit a private application and the sites will recommend investors to you.

Email marketing is another way of building and sustaining relationships with investors. You can build an email list of angel investors and send them a personalized email streamlined using email marketing tools. This strategy not only has the highest conversion rates but also offers the best ROI. Important is a tool to verify emails in bulk.

Pro-Tip

In addition to submitting the PowerPoint pitch deck, you should also include a video presentation. While the traditional pitch deck is effective in delivering facts and numerical data, a video pitch deck will help engage your potential investors more effectively and with a lot more personality.

2. Private Equity Firms

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These firms gather funds from investors and other businesses to invest in, acquire and develop privately owned businesses that are not publicly traded. Portfolio companies are examples of such private businesses that private equity firms hold stakes in. 

Private equity firms also turn to financial institutions for aid when they need access to large sums of money to invest in companies that are in financial trouble or that require long-term financing to avoid going out of business. 

The four common types of private equity investments are:

• Buyouts 

• Real estate

• Venture capital

• Investment capital

Let’s take a look at the pros and cons of this type of investment.

Pros of Private Equity Firms

• Huge sums of money can be taken out of private equity investments 

• Private equity firms and funding are not affected by the public market

• The investments are usually made in businesses that are at the early stages of their lifecycle, making it possible for your business to grow rapidly 

• Private equity firms are always actively involved in every step of the investment, from seeking the funding to getting it, and allocating it appropriately

• Private equity has proven to be a profitable long-term investment, outperforming many other assets, including public markets, in addition to promoting growth

Cons Of Private Equity Firms

• Even though some private equity investments have phenomenal growth potential, they also carry a considerable amount of risk

• Due to the active involvement of these firms, you will no longer have full control over your company's activities and administration 

• Businesses must be transparent about their financial situation since private equity firms place high importance on transparency and precise information

How To Attract Private Equity Firms

If getting in touch with private equity firms for investment support is right for your business, then there are a few steps to take to attract their interest in your company. 

1. Make a business plan that also details how you will allocate the funds 

2. Include a well-thought sales enablement plan, means to achieve it, and forecasts

3. Outline specific business growth strategies that take long-term growth into account 

4. Determine the amount of funding you require 

5. Put special emphasis on the exit strategy

6. Put the plan together in a presentation 

7. Rehearse your pitch to persuade investors to assist with financing your company 

8. Once your company proposal is polished, search for private equity investors. You can hire brokers, participate in pitching competitions and tech exhibitions, crowdfunding sites, or via your personal and professional network. you can set your company apart from the competition by taking advantage of the modern influencer marketing trends and creating high-quality blog posts on industry influencer blogs

3. Friends And Family