Financing for Startups: Types of Investors you Need to Know!!

Raising funds for your idea is never easy. Your product/service alone won’t reach customers spontaneously. If you are bootstrapped now, sooner or later, you will need investors to fuel growth.

Right from philanthropic ex-owners of conglomerates to financial institutions, your choice of investor has far-fetched implications in terms of capital, guidance or direction you can expect from each round of funding.

Here, is a series of different types of investors - how incubators differ from accelerators, angel investors and the differentiating factors between micro-VCs and the super-angels.

Angel Investors

If you are willing to part with an equity share of your startup, angel investors might be your cup of tea. Angel Investors, most of the times are wealthy individuals that offer funding to early-stage startups in exchange for their equity share in the Company.

Angel investors usually offer a one-time investment to help your business propel, or deliver an ongoing injection of funds to support and help your Company grow across initial hiccups and stages.

If a startup fails during its early stage, the angel investors risk losing their complete investment. As a result, professional angel investors expect opportunities with a defined exit strategy, acquisition or IPOs (Initial Public Offerings).

Origin of Angel Investors

The term “angel” was coined from the Broadway theater, where wealthy individuals offered grants to support theatrical productions. Later, the term “angel investor” was first used by William Wetzel, founder of the Centre for Venture Research at University of New Hampshire.


  • Angel Investors risk more: Angel investors possess a higher tolerance for risk against most investors. In short, you can expect to meet your funding goals, for a significant stake you offer in your startup.
  • Flexibility: Angel investors are not limited by regulations like Venture Capitalists or financial institutions. Simply put, angels can often modify investment terms in order to benefit both the parties.
  • Experience: Most of the angel investors have built a Company and managed it successfully for multiple years. They bring their own experience and connectivity to the table, in addition to the funding.
  • Spontaneous Decisions: Angel Investors are sole decision-makers, where they can make investment decisions extremely quickly, in contrast to VCs and Financial Institutions where the Board of Directors hold the discretion for funding your startup.


  • Expensive: Giving away a influential equity share in your early-stage startup might be costly. The costs can be even higher if you want to relate with a big-name and preferential investment terms.
  • Angels are Humans: In absence of other investors, and zero accountability, it is easy for an angel to exploit a rookie founder. There are also multiple variables in terms of time, energy or expertise, the individual investor imparts to your startup.
  • Funding is Limited: Angel investors might be wealthy, but they certainly have less investment capital against VC funds or financial institutions. In short, you might outgrow their support when you scale up, at a later stage.
  • Return Expectations are high: Angel investors, being the first one to stake their funds on your startup, expect higher returns due to attached higher risks. Future investments might highly dilute the angel’s equity, and as a result, they expect to be remunerated considerably in terms of ROI.

Startup Incubators and Startup Accelerators

Startup Incubators have overtaken the early-stage startup funding ecosystem lately. Coupled with multiple financial, human resources & physical resources, startup incubators help foster early-stage startups through the initial stages. Startup incubators can help your idea grow via any or all of these solutions:

  • Access to financial capital through relationships with financial partners & investors.
  • Access to experienced business consultants and C-level executives
  • Access to physical location space and business infrastructure
  • Access to information and research resources through incubator network
  • Access to service providers for availing any & all services needed

A startup incubator supports innovators when they are still at the idea stage, offering easy access to infrastructure and ecosystem necessary to help them realize in into reality. Simply put, innovators are offered an opportunity to build a Minimum Viable Product (MVP) where collaborations might last from few months to multiple years.

Startup accelerators on the other hand, are uniquely focalized towards funding a startup. Conventionally, accelerators offer capital for a stake in your Company, and help to scale your existing growth. Post the accelerator stage, startup founders develop the performance metrics and get ready to pitch for a full seed round.


  • Guidance: The best startup incubators and accelerators offer mentorship from industry leaders, and some of the leading startup minds.
  • Reliable Funding Source: Incubators and accelerators are often backed by multiple VCs, angels and CXOs, which acts as a direct and trustworthy route for funding in hour of need.
  • Credibility & Outreach: Your startup’s acceptance in a leading incubator can definitely help with the visibility and long-term credibility.
  • Access to Services: As an early-stage startup, you will need services like legal, HR, marketing, finance, etc., Some innovative startup incubators help you with all these.


  • Cut-throat competition: Most of the incubators and accelerators, accept just 1 to 2% of the total applicants.
  • Security: Since the leading incubators are over-populated, newer solutions pop up every now and then, with little or no security measures for transactions or verifiability.