VCs, Angels, Family Offices - Introduction to types of investors
Nov 02, 2022
No, a family office is not a cosy mahogany-lined room with well-used, yet comfortable, leather furniture where you meet to discuss important things like your next holidays. At least that’s not the definition I’m using when talking about different types of equity investors.
In this article, I’ll introduce the most common types of investors who invest in equity crowdfunding campaigns. And yes a family office is one of those investor types, although it’s fair to say not one of the most usual when it comes to crowdfunding campaigns.
Family offices
So in case you’re interested, a family office is a company specifically set up to manage the assets and investments of a wealthy - super wealthy - family. Generally speaking, you’re talking about investable assets worth tens of millions of pounds. A key objective of a family office is to grow and transfer wealth across generations. So yes they can and do invest in all types of businesses, which they do in their capacity as an incorporated body, and not as private individuals. One of the reasons this latter point is important is that a family office cannot take advantage of SEIS/EIS tax relief schemes. Nevertheless, family offices do sometimes invest in crowdfunding campaigns.
Business angels & VCs
Next, we have business angels and venture capitalists, which are often grouped together when a business is considering the potential sources of investment. So they might at first glance appear similar, but they’re not really. There is an easy-to-understand distinction between these two investor types though. Which is a business angel, often simply referred to as an angel investor or just an angel, is a person who invests their own money, whereas a VC invests someone else's. There are all sorts of different types of VCs but in the main, they attract money from multiple sources and accumulate that money into a fund on behalf of multiple investors. For example, a VC can set up an SEIS fund by seeking investments from individuals and then invest that fund into an SEIS-qualifying business.
The main thing that separates an angel investor from any other individual investor is their level of ‘sophistication’ and investment habits. Sophisticated means the investor is very well informed in financial terms and fully understands the risks associated with investing in companies. There’s also the implication that such an investor can afford to incur a loss from a potentially large investment. The general expectation is that angels invest larger sums in a business i.e. thousands, tens of thousands or even more.
Retail/Casual investors
The last broad investor group is often referred to as the retail or casual investor. While they may - or may not - be pretty well informed about how investments work, they aren’t typically very active with their investing and may only support one or two businesses. This is often the case when people invest in crowdfunding campaigns for businesses owned by their friends and families. A large number of the investors registered with the crowdfunding platforms would be considered retail investors. And typically they make up the bulk of investor numbers in a crowdfunding campaign.
In another article, I’ll talk about how the UK’s crowdfunding platforms, such as Crowdcube and Seedrs, work under the direction of the FCA to help retail investors make informed decisions about investing in crowdfunding campaigns.
Author: Richard Mojel, Commercial Director, ISQ.
