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Ishika

FE-00713

Marquee Equity Fellowship Program

Sept 01. 2022, 11:59 p.m.

Types of Investors

We must be clear about the concept of an investor in order to comprehend the

different types of investors. Any individual or group who invests money in the hope of

making a profit is referred to as an investor. The main objectives of an investor are to reduce

risk and increase return. The difference between an investor and a speculator is that the

former invests in a hazardous business in the hopes of making bigger profits, whilst the latter

only does so after weighing all potential risks. Investing is the process of putting money into

a company or organization in an effort to make a profit. An investor in a small firm assumes

the added risk of earning little or no profit because the venture may or may not be successful.

However, an investor can make a more informed decision and enter and exit the market at

their discretion when dealing with a publicly traded firm because there is a wealth of

information on the company's financial status readily available.

Investors fall into one of essentially five categories. Angel Investors is first on the list.

These are individuals and organizations who make investments in early-stage startup

businesses in return for equity ownership stakes or convertible loans. The University of New

Hampshire's Center for Venture Research reports that the year 2020 saw the return of angel-

funded companies to the seed and startup stages. In that year, investments totaled $25.3

billion, up 6% from the previous year. When a company has an angel investor, it indicates

that because it is already exchanging ownership shares for money, the business is exempt

from having to repay the cash. Angel funding is typically limited to more established

companies. These businesses have shown signs of profitability, but they still require funding
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to expand or develop new products. Because an angel's money is on the line, they may have a

strong incentive to support the businesses' success through mentoring or by providing hands-

on management assistance. An angel investor will anticipate a higher return on investment

the more money they invest in the company (ROI). The expected return on investment varies

depending on the type of investment and the angel investor. They typically anticipate a return

on their investment of at least 30%. As part of their exit strategy, angel investors will have a

return on investment expectation in mind. In order to recover their initial investment and any

earnings, they now sell their firm equity. Peer-to-peer (P2P) lenders, who enable people to

lend or borrow money without going via a bank, are the second kind of investor. Individual

investors who participate in peer-to-peer lending seek a higher rate of return on their cash

savings than they would find in a bank savings account or certificate of deposit. The

borrowers gain from it because they now have an alternative to conventional banks or a

reduced interest rate. Lenders are hesitant to make large investments because they must take

into account the possibility that the borrowers would miss payments.

Venture capitalists, who are investors who provide funding to start-up businesses in

exchange for stock, come in third on the list. A venture capitalist seeks out businesses with a

strong competitive edge, a good management team, and a sizable market. The role of venture

capitalists is to help establish successful firms when they have been persuaded that the

business has potential and that their product or service has a sizable market. This is where

they truly bring value. The strategic focus of a company will be established with the aid of a

venture investor. They will be available to provide CEOs with advice and serve as a sounding

board. All of this is done to aid a business in increasing its revenue and expanding its market

share. The majority of business owners first rely on their close friends, family, or

acquaintances to support them by investing in their company. They are the fourth type of

investor—personal investors. There is a cap on how much they can invest in a person's
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business, even though they can help with capital. These investors typically invest less money

than other investors do. In addition to this, banks and other financial organizations can be

regarded as investors because they give businesses funds when it is needed.

On the basis of the role they play after investing their wealth, investors can also be

divided into active and passive categories. While passive investors prefer security to risk

when choosing assets and hence invest in diversified portfolios, active investors desire to

actively participate in investment decisions and financial matters in general. Investors display

a variety of characteristics: some are careful, some are careless, and some make decisions

based on emotion. A company must consider the level of assistance that it anticipates from

investors. Some businesses require both financial resources and advice, while others only

require one.
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Works Cited

https://www.thehartford.com/business-insurance/strategy/alternative-funding-

startup/angel-investors

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/investor/

https://larta.org/idea/5-types-of-investors/

https://www.investopedia.com/terms/p/peer-to-peer-lending.asp

https://www.business.com/articles/angel-investors-vs-venture-capitalists/

https://www.investopedia.com/terms/v/venturecapitalist.asp

https://eqvista.com/types-of-company-funding/different-type-of-investors/

https://www.theentrustgroup.com/blog/6-types-of-investors-which-one-are-you