Wouldn’t it be great to be a Dragon investor? While most of us can only dream, the good news is that there are more investment opportunities than ever for ordinary investors. So, what type of investor are you?
I got in touch with Oliver Woolley, CEO of Envestors, to find out more about the nine main types of investors. They range from ordinary investors to mega-wealthy, corporate and government investors.
Most of us will only ever be ordinary investors. But if you own a small business and you need funding, then it’s worth being aware of every type of investor.
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Ordinary investors
If you’re an ordinary investor, then you have several investing options.
1. Traditional investing – funds
If you want to invest in bigger companies, then you can invest in an equity or share fund through a stocks and shares ISA, a pension scheme or a share-buying platform.
Most funds invest in established, profitable companies rather than early-stage ventures. There are hundreds of funds in the UK. The most active include Mercia Fund Managers, Par Equity, SFC Capital, Lloyds Development Capital and Maven Capital Partners. Each fund manager is likely to manage several funds.
2. Individual shares
If you want to invest in individual shares, then there are more ways than ever to do so. Some pension schemes and stocks and shares ISAs will let you invest in individual shares. There are also share buying apps that will give you easy access to buying shares. Make sure you think about diversifying your portfolio so you’re not an investor with all your eggs in one basket.
3. Crowdfunding
If you’re even more adventurous, then you might want to invest in smaller companies. You could look at crowdfunding or peer-to-peer lending.
Crowdfunding platforms pool resources together from individuals to invest in exciting new businesses and projects. You can start investing for as little as £10 and you may get to own a little bit of the next Amazon or Tesla.
Some crowdfunding campaigns offer discounts or products in exchange for investing rather than shares, so you need to read the terms and conditions carefully.
[middle_pitch]
Super-rich investors
Super-rich investors have more money to play with when it comes to investments. This means they can afford to go big and take more risks.
4. Angel investors
Angel investors typically invest between £5k and 250k. These wealthy investors, like those on Dragon’s Den, expect to receive a big chunk of the business in exchange for their investment. They can also provide expertise, guidance and introductions to help accelerate a business’s growth.
5. Family offices
Family Offices manage the wealth of ultra-high-net-worth individuals or families. They often ask for a large stake of the business, sometimes over 50%.
6. SEIS funds
Seed Enterprise Investment Scheme (SEIS) funds are a tax-efficient way that rich individuals can fund businesses. They focus on start-ups seeking their first round of investment of up to £150,000. SEIS funds are a great option for businesses, but the market is highly competitive and most funds will charge fees.
Business investors
Business owners who are keen to invest in the next big thing get involved in other businesses in a number of ways.
7. Corporate venturing
Corporate venturing involves large corporations investing in start-up companies, often within the same core industry. These corporations also give operational, strategic and marketing support.
Government and university investors
The UK government is always looking for ways to support small businesses. There are hundreds of different government and local business grants available for businesses. If you’re a small business owner, then you might want to consider applying for one of these options to fund your business.
8. UK government-supported funds and enterprise funds
There are several initiatives backed by the UK government to support small businesses.
Worth investigating are the Angel Co-Fund, the Delta Fund, Business Growth Fund, Enterprise Capital Funds and the Future Fund: Breakthrough.
There are also regional funds supported by the European Regional Development Fund. The three regional funds are the Northern Powerhouse Investment Fund, the Midlands Engine Investment Fund and the Cornwall & Isles of Scilly Investment Fund.
In addition to the three regional funds, there is a Regional Angels Programme designed to help reduce regional imbalances in access to early-stage equity finance for smaller businesses across the UK. The funds are managed by established private sector funds and business angel groups.
9. University seed funds
These funds support small businesses that focus on invention and innovation.
