A substantial part of running a successful raise is to understand the industry; who is the target audience, why do they invest, and how are investments made?
Starting with the who and why, there are various types of investors, each with their own investment objectives, risk tolerance, and preferences.
Here are some common types of investors and what they look for:
High net worth individuals (often times previous founders themselves) who like to support and invest in early-stage startups where their thesis and criteria is often based on personal interest and experience in certain industries. Usually takes an advisory role, can be quite hands-on, and invests in smaller tickets.
Invests into early to late-stage startups with high growth potential, often in exchange for equity/tokens in the company. Usually operates through funds (not always the case) with a varied thesis and criteria that can be thematic per fund and vertical aligned to managing partners’ expertise, which is tied to their value-add areas. Venture capitalists may focus more on startups that are poised for rapid growth and have a clear path to exit through acquisition, IPO, or token launch.
Private wealth management firms that manage the financial affairs of high-net-worth families. Family offices often invest in early-stage startups as a way to diversify their portfolio and seek higher returns than traditional investments, as well as a means to support innovation and potentially leave a positive impact on society.
Invests in well-established companies with the goal to improve operations, reduce costs, and increase revenue. They often acquire a controlling interest in the company and may work closely with management to implement changes. Investors may look for companies with a strong market position, a proven business model, and the potential for growth through expansion or acquisition.
There may be legal requirements that must be met in order to be able to invest in a startup or VC fund, wether that investment is in exchange for tokens and/or equity, which varies by jurisdiction.
Today, investing into a wide range of assets, including startups, is becoming more and more accessible for retail investors (i.e. Syndicates, DAOs, Launchpads, etc). Some solutions offer the same terms to be able to invest alongside other VCs regardless of minimum ticket sizes where investors can pool capital to invest into a startup round. The two most typical structures (traditional) for investing in equity / tokens are SPVs and Syndicates.
In venture capital, the lead investor takes the primary role in negotiating terms (valuation) and setting the tone for the rest of the investors. This includes legal and administrative aspects of the investment process and thorough due diligence.
The lead investor is often the largest investor and has the most influence on the outcome of the funding. As they have a higher stake in the company, they have a stronger incentive to ensure that the startup succeeds.