What Are The Different Types Of VC Firm Every Founder Needs To Know?

Raising venture capital isn’t just about trying to find as many options as possible. In fact, having a targeted approach means you are much more likely to be successful in your raise.

Different VCs have different preferences, approaches and criteria when looking where to put their money.

The more you understand who you’re pitching to, the better chance you have of locking in the right partner.

So, what are the different types of VCs and investors that you should know about?

But first, lets take it back to the basics.

 

At What Stage Do VCs Invest In Startups?

 

Not every investor is looking to put their money in at the same point in your journey. Some specifically look for early-stage companies, where they can play a key part in building product, strategy and sometimes even help launch to market.

Others want to see a little bit more proof in the pudding so to speak, these later stage investors want to come in to help drive growth, expansion and prepare a company for an exit.

The key? Making sure the stage your company is at matches what investors are looking for.

 

Types Of Venture Capitalists

 

There are a few main types of venture capitalists. These can generally be divided into:

 

Angel Investors:

Angel investors are usually wealthy, high net worth individuals who are investing their own personal money.

Many of these belong to syndicates, which are groups designed to share interesting investment options with angels. Many angels are former founders themselves and may have an interest in a specific type of venture.

 

Private Equity Firms:

Whilst Private Equity isn’t exactly the same as Venture Capital, it can do similar things. Private Equity firms usually invest in later stage businesses, many times buying large, controlling stakes or even the whole company.

 

Venture Capital Firms:

This is the catchall term for any investment group that puts money into startups. This money can be from small funds, corporate profits, governments or family offices. VC firms can specialise in early-stage startups or late-stage unicorns – each one is different.

 

 

Investors For Early-Stage Funding (Pre-Seed/Seed)

 

Incubators

Incubators are designed to give startups workspaces, mentors and resources to help them grow their idea into a viable business. In exchange for all the support, they often take a bit of equity.

Incubators are best for very early stage startups that may not have even gone to market yet.

 

Accelerators

Accelerators like Y Combinator or Techstars run intense programmes where they choose a cohort of companies to scale fast. Usually, this ends in a demo day, where potential investors will come, listen to and sometimes even invest in the companies.

Accelerators are great for early-stage companies to learn from seasoned scalers. However, they can be competitive to get into, especially if they are big names.

 

Angels

If you’re starting a business and looking for some money, and have already spoken to family and friends, Angels can be a good bet.

You can do this by either approaching Angels in your sector directly and ask for a meeting, or by appealing to syndicates. Syndicates usually work by finding, interviewing and sharing investment opportunities with angels – so it can be a great way to get in front of this group, and fast!

 

MicroVCs

MicroVCs usually run smaller funds and back very early founders. One of the main qualities that MicroVCs have is that they are highly involved in the growth of the company.

MicroVCs are perfect for founders who are too early for big VCs but need a bit more than what a single angel can invest. Especially for pre-seed startups, these funds can be a good option.

 

University-Linked VCs

Universities now have funds to back spinouts and research-driven companies that they think have strong commercial potential.

Universities are hubs of innovation, so it only makes sense that they invest in the companies created within them. If your startup is research-based and involves a university in some capacity, it might be worth exploring if they have any funds to invest.

 

Investors For Mid-Stage Funding (Series A+)

 

Family Offices

Family offices are private investment firms for wealthy families. They usually invest in a diverse range of businesses, including startups.

Family offices may not be the right audience for very early stage startups, but for those slightly more established, they could provide a nice chunk of capital.

 

Institutional VCs

If you have a famous VC fund in mind, they are probably an Institutional VC. Think Sequoia, Octopus Ventures and more.

Institutional VCs usually write checks around £1m+ around the Series A phase, but usually want to see some proof of product-market fit, a path to profitability and capital growth.

Whilst these companies do invest in later stages too – especially the larger funds – they usually are open to startups that have launched but are still in their most nimble phase of growth.

 

Corporate VCs

Many big companies, like Virgin, Google, Salesforce and more have venture arms. This is so that they can reinvest their profits (and expertise) into growing and tech companies.

Usually, they will be looking for companies that align with their brand or product sector, if you find a link that works, they can be great strategic growth partners.

 

Investors For Later Stage Funding (Series C+)

 

Large VC Funds

Within the ‘institutional VC label’ sits a group of funds that invest big ticket cheques into later stage companies as well as early stage ones. These businesses will usually have large portfolios and huge sums of capital.

One of the biggest benefits of partnering with a large VC fund is the credibility it can give a startup. After all, if other funds see a big name backing a company, they are more likely to jump on board.

 

Sovereign Wealth Funds

Many countries will have a state-owned investment fund that is invested to grow the country economically.

The biggest sovereign wealth funds in the world by assets, according to Visual Capitalist, are the Norway Government Pension Fund Global and the China Investment Corporation.

Other top contenders include the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi Arabia’s Public Investment Fund.

Whilst they invest in a number of different ventures, they usually partner with venture capital funds to invest into high-growth startups.

 

Private Equity

Private Equity firms tend to only invest in later stage companies that have stable revenues, solid cash flow and a strong growth trajectory.

They usually buy big stakes with the aim of driving the business to expand and eventually IPO.

Whilst PE firms only invest in a specific type of business, they can be great options for companies that need help pushing them towards an IPO or full sale.

 

Finding The Fund For You

 

Fundraising can be tough, but choosing the right partner can make it a hell of a lot easier.

First, think about what stage your business is at and how much capital you will raise, then, think about the type of company or person most likely to invest.

Ultimately, the better your strategy is, the better chance you have!