One of the ways in which you can finance a startup in the Internet world, is venture capital. But who are the investors and what do they want from a project or a new company?
Those who are interested in advancing new projects for the internet know that it will be difficult to achieve them if they do not get the necessary capital to develop them. They also know that investors are scarce at this time and ask the following questions:
A. Who are the investors?
There are different investor profiles, so it is worth differentiating them like this:
Angel Investor: They are usually the first to believe in your idea, your parents or friends, but they can also be small investment funds. The angels' investment is small, although in some cases $ 500,000 is a small investment. The angels' investment is usually the riskiest, since they usually invest in an idea, more as an act of faith than as a detailed study of the project. The contribution of the angel is known as seed capital or seed capital because it is what allows the idea to germinate.
Venture Capitalis t: is an institutional type investor, generally an investment fund that knows well the business in which it hopes to invest, in this case the Internet. There are funds of different sizes, some target certain types of companies, others specialize in investments that do not exceed x capital, some operate with their own money (they are generally subsidiaries of large companies) and others as operators of other investors. The amount of their investment is much higher than that of the angels, but it is less uncertain, since the company must be working or about to do it and the analysis of the project and the business model is really rigorous.
Private Equity: Although they are still a rare species in the Internet, these agents are dedicated to investing in the purchase of companies or parts of companies, which are not publicly traded. They usually enter a company, capitalize it, help it grow rapidly and improve its profits, which means that when they sell they obtain great profits.
Financial Structures: In this category are the Major Leagues: investment banking. Here the stars are: Solomon Smith Barney, Merril Lynch, Goldman Sachs, etc. They usually come to projects when large capital injections are required or when you want to go public (IPO: Initial Public Offering).
Investor Classes
Angels * Venture capitalists * Private Equity * Financial Structures
b. Where are they located?
Without a doubt, the vast majority of funds and large investors are concentrated in the United States. Some of the most important firms in risk investment have arrived and have invested in Latin America, there are also some firms such as Telefónica de España, which, through the purchase of local telephone companies, has made a strong foray into the region.
What is currently being seen is that large traditional companies are trying to structure venture capital funds to bet on new Internet projects, since they have noticed the great potential it has in the region. In addition, small funds are being formed, often driven by business incubators, which see the Internet as the ideal space to support entrepreneurs and their ideas.
c. What do they seek?
Except for the angel, who can be your mother, all investors look for structured projects with great potential for success. Venture capitalists will look for businesses or start-ups, equity businesses in full production, and structuring companies will look for firms that are close to being listed or that require an investment of more than US $ 10 million.
The characteristics that they look for in a venture are:
- Differentiation: they prefer to invest in new ideas and business models, unexplored markets or market segments or where leadership can still be achieved. Entry barriers: it is not enough to be different, they can copy you. Barriers to entry must allow a project to maintain and increase its market, even when new competitors enter. A barrier to entry can be registering on the site or subscribing to a newsletter. People: Investors put their money on people they trust, either because of their experience or their ability. The stage in which they invested in green hair is over, now they prefer to do it in teams that have gray hair. Results Potential: how much money will they earn and when will they earn it. If it is a lot of money and the term is short, success is certain.
What they want. Differentiation * Barriers to entry * Equipment * Results
If you have projects or ideas, try to structure them in the best way, if possible go to business incubators that can help you. These days the rigor of investors is great and if you are not really prepared you will not have many options.
