Angel investors, VCs, and incubators are all viable sources of financing. But how do they differ from one another? While the specifics may change depending on local regulations, some distinctions hold true, no matter where the startup or investors are based.
While there is nothing like a hierarchy of investors, some sources of financing will be more suitable for startups at a given stage of development. The progression isn’t linear, nor will it look the same for every startup. Some companies might skip a few steps, while others may take the same kind of funding multiple times.
For the majority of founders, the very first source of capital is usually still friends and family. Having exhausted this (normally modest) avenue, the options can become more complex.
Angling for angels
After successfully raising capital from rich uncle Norman, the next rung on the complexity ladder is to win over someone you are not related to. At this stage, the startup is often no more than an embryonic entity. Convincing someone to part with their savings, without being tied by bonds of blood or friendship, is a tougher proposition.
Angel investors are usually high-net-worth individuals who provide capital for startups out of their own pocket. Angels prefer to put their money to use in sectors that they know, so they might also be able to provide advice or access to networks in addition to financing. Or they may not – preferring to provide just the cash, and leaving the rest to the founders. Much depends on the inclination of the individual investor.
The relationship between founders and angel investors is, by necessity, a personal one. Both founder and investor will have skin in the game, and both will have a vision for the fledgling company. Matching with someone who clicks well with you is just as important as the amount of financing they are willing to provide.
Incubators and accelerators
Incubators and accelerators will ideally nurture your startup until it is ready to leave the nest. As well as potential funding, these hubs usually also offer non-monetary perks such as intensive programmes, mentoring, access to industry networks, and the use of co-working spaces and other facilities.
Some incubators and accelerators support a broad range of different types of companies, while others, like ours at the ProVeg Incubator, focus on specific sectors. The entry criteria vary from programme to programme and selection processes can be very competitive.
