6 Types of Startup Investments You Should Know About

Bootstrapping

This is the initial investment in a startup, typically, it’s the first interaction with a startup as one of its founders. The average value of this investment fluctuates, depending primarily on the market sector and the number of founding partners. Tech innovations usually require a larger initial contribution. It’s not typically recommended for those who merely want to invest without rolling up their sleeves – after all, the founders are the first to put in the work.

Angel Investing

This is ideal for executives, entrepreneurs, and other successful and experienced professionals — individuals. This type of investor seeks to diversify their financial investments, but also wishes to participate in the company’s formation process as a mentor, leveraging their experience.

The investment amount typically varies between 5% and 10% of the investor’s assets. Most angel investors have surplus funds available and are in search of a higher return rate than traditional investment opportunities. The negotiation of this type of investment is conducted directly with the founders, to determine the value and percentage of the company that is transferred to the “angel”.

Seed Investment

This is reminiscent of angel investing, but it’s a step above as it’s focused on funds (investment groups). As the idea is to cover the initial costs, structure, and creation of the product, this type of modality can contribute up to 5 million reais. Normally, it does not require physical work from investors, only a “council” can be created to stand apart from decisions, with voting power or not.

Equity Crowdfunding

This is the perfect example for smaller investment amounts in exchange for a small piece of the company. No prior experience is required, making it interesting for beginners. Equity crowdfunding, also known in Brazil as participatory investment, allows you to invest directly in startups through platforms authorized by the CVM, and thus, build a portfolio of startups with ease.

Why CVM? It’s not just any crowdfunding anymore. It is a real investment, which falls within the scope of the financial regulator, equity participation in public offerings of securities, so they need to go through the body.

Venture Capital (Venture Investment)

This is best suited for experienced companies or investment funds. Companies typically invest in businesses that have proven their revenue model or, if not, at least have a sizable, fast-growing customer base with a revenue strategy in place.

The average investment is high, as this type of modality is already made at a stage when the startup begins to have robustness, ranging between 1 and 20 million. It is associated with an investment fund, preferably known. Returns are normally controlled.

Private Equity

Investment modality in the startup maturation period, the last investment level, is mainly directed to larger companies with interests in the target market. The investment is very variable, medium companies usually invest 5 million dollars, while some global companies can reach billions in investment. The returns are controlled, but consistent, the ultimate goal may be the acquisition of the startup by the company that controls the fund.

These are the types of investments for startups.

Conclusion: Investing in startups can be a rewarding journey, both financially and personally. By understanding the different types of investments available, you can align your investment strategy with your financial goals, risk tolerance, and level of involvement. Remember, every investment comes with its own set of risks and rewards. Therefore, 

it’s essential to do your due diligence and possibly seek advice from financial advisors. With the insights from this article, you’re now one step closer to becoming a savvy startup investor. Happy investing!