Starting with this simple distinction that we at Startuplinks make between being sophisticated or institutional and unsophisticated or non-institutional. The difference between the two comes down to how much time an investor spends investing in startups and how much training they have received—in other words, how professional they are when investing in startups.
Unsophisticated or non-institutional investors.
This category includes:
- Angel investors: Individuals who invest their own capital in startups and may have limited knowledge of startups, but are willing to take on the risk at very early stages, such as pre-seed.
- Government support: We consider this unsophisticated because even though this funding requires you to report how you spent the money, at the end of the day, the funder is not on your cap table, since no equity relationship is created.
- FFF (Family, Friends and Fools): People who may invest in a startup through a crowdfunding campaign and often do not expect a return on their investment, but rather want to support a cause or the founding team because of their personal relationship. They may also invest directly in the company, which would also place them in the angel investor category.
Sophisticated or institutional investors.
This category includes:
- Accelerators: For many startups, accelerators are the first institutions to help them “validate something and verify that someone believes in them.” Some take equity in exchange for services; others provide services, the program, and some investment. Whatever the model, the accelerator ultimately becomes part of your cap table and often helps you formalize your company.
- Corporate venture capital funds (CVCs): These are corporations with a division that invests in or collaborates with startups. Here, we distinguish between collaborating and investing, because some have a corporate VC that only looks for startups to connect with for potential pilots, while others have accelerator programs, and still others have an investment division. Some corporate venture capital programs include 2 or 3 types of programs for startups.
- Venture capital funds (VCs): A venture capital fund is undoubtedly the clearest and most natural example of an institutional investor, because that is what they do: invest exclusively and specifically in startups.
- Institutional angel investors: In LATAM, a group of angels is beginning to emerge whom we at Startuplinks could start calling “institutional,” based on their experience investing in startups, creating content, and, in some cases, even launching their own funds. This professionalization of angel investors is more common in markets such as the United States, with examples like: Jason Calacanis, an angel investor, podcaster, and author. However, in Latin America, we are increasingly seeing people with the profile and reputation to be recognized in this space. Some of them are: Enzo Cavalie, Alex Galvez and Christian Van Der Henst.
To complement what you've learned, we invite you to check out the content on startup funding stages, where you’ll learn about the various stages a startup goes through as it develops as a business.