Find the right investor for your business

What are the different types of investors you can approach?

There is no single right investor — only the one whose money, stage and appetite match what the business needs now. These are the routes open to a company raising in South East Asia, and what each asks of you in return.

Friends and family

Friends and family are often the first investors in most businesses. They may or may not take equity, and may be willing to invest when there is little or no base for a calculated investment decision. These are people who know you, trust you, and believe in your abilities and vision. The amounts are comparatively small — roughly $1,000 to $200,000 — but often enough to release a minimum viable product.

• Communicate the risks of investing in an early-stage company, and preferably ask only those who have high disposable income.
• Personal relations will now include business, so choose individuals you can manage a business relationship with.

Angel investors and angel groups

Angel investors are wealthy individuals looking for an alternative place to put spare money. They can be reached online through email and social media, or offline through networking events and introductions from other founders. Beyond the money, many bring business guidance and a network with them.

• Angel groups are several angels investing together, at larger cheque sizes and lower individual risk. Because the group is several people, approval and evaluation take longer and tend to be more stringent.
• Angel investors understand the risks better and are more experienced than friends and family who invest.
• They may invest for reasons beyond the financial upside — an affinity for the industry or the cause — so tailor the pitch accordingly.

Incubators and accelerators

Incubators and accelerators are programmes and ecosystems for shaping and growing a startup. If selected, you may receive seed funding of anywhere from $10,000 to $125,000 to shape the idea and gain traction.

• Both support businesses beyond the funding — infrastructure, advisory, manufacturing aid, training, networking and guidance — and a successful programme often ends in an opportunity to pitch to larger investors.
• Many founders prefer them to angel investors because the value added is higher.
• They provide the ecosystem, but you have to make the most of it. Expect support and guidance, not handholding.

Family offices

Family offices invest on behalf of high-net-worth individuals or their extended families, and are increasingly drawn to startups. They work much like angel investors, though they are usually less specialised where startups are concerned.

• They generally move faster and with more flexibility than traditional investment firms, because there is no formal mandate or investment committee in the way.
• Look for one with experience in your industry, which is where the networks and relationships they can open come from.

Venture capital firms

Venture capital firms are the big players in equity financing. Unlike the investors above, they are dedicated to generating returns for their limited partners. Beyond the money they provide direction, and they take an active part in decision-making.

• They invest across every stage. Pre-seed and seed investors make some of the first investments in a company, judging the team, the product or the market. Series A and B investors generally back companies already generating revenue that have found product-market fit. Series C and later fund scale.
• Find the right firm rather than any firm — filter by the locations they invest in, the industries they back, and the stages they fund at.
• The process is intimidating and cumbersome. Stay organised, be efficient, and be thorough about the plan and the vision.
• Be prepared for rejection: fewer than 1% of companies that apply secure venture capital.

Corporate investors

Corporate investors are larger companies with capital funds they invest into startups that may prove useful to them later — corporate venturing. Singtel is one Singapore example.

• Beyond the equity, they take the idea, the technology or the fresher thinking to diversify assets, support their own growth, fend off industry change and increase revenue. A fruitful partnership sometimes ends in acquisition.
• They invest in ideas that align with their own growth plans. If yours does not, they may pass regardless of its profit potential.
• A founder and a corporate investor think very differently. Both have to understand and respect the other’s view for it to work.

Crowdfunding

Crowdfunding has grown steadily thanks to platforms such as Kickstarter and Indiegogo. It lets you raise small amounts from a large number of people without necessarily diluting equity. Singapore sees four kinds: reward-based, donation-based, equity-based and lending-based.

• It suits raising initial capital to get a product or service to market.
• It is a more digital route: you list the idea online and people back it there, rather than pitching one to one.
• Popular platforms in Singapore include Kickstarter, Indiegogo and FundedHere.

Government bodies

The Singapore government supports startup growth in several ways — grants, tax incentives, loan and insurance support, and direct financial investment.

• Government programmes come with restrictions and limitations. Review them carefully before committing.

Banks

A traditional bank loan is one of the most common ways to finance a business, and many founders prefer debt to equity because it does not dilute ownership. It suits a startup wanting to get moving before securing larger funding.

• A bank loan usually requires a consistent stream of income, collateral, or both.
• Repayment begins immediately after disbursement, regardless of how the business performs.

Crowdlending and peer-to-peer lending

Crowdlending — peer-to-peer lending — is to bank loans what crowdfunding is to friends and family. Entrepreneurs borrow directly from individuals through online platforms, repaying the principal plus interest for the risk taken.

• If you want debt funding but cannot get a loan from a traditional bank, crowdlending platforms are a reasonable alternative.
• Loan amounts generally range from $1,000 to $40,000, repayable over about 36 months.
• Platforms operating in Singapore include MoolahSense and Funding Societies.