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Lending money to a friend? What kind of investor are you? Who is an investor?

A person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit/ financial returns from it.

The investors may include everyone, that is, from startup accelerators to Capital Markets institutions and even family members who loan money to one another. They buy into long-term strategic positions and expect their assets to appreciate in value over time.

How do investors make profit?

Most investors generate income through debt and equity investments

An Equity investment means owning part of a company’s stock. If the stock pays dividends or raises in value, the investor earns profits. The investor realizes those profits upon selling the stock.

A Debt investment on the other hand is structured as a loan. In this case, the business owes a certain amount of money to the investor and pays it back with interest over time.

What type of investor are you?

  • Pre-investors

These mostly have not yet started investing, friends, family, and close personal contacts and not professional investors. These people may have capital that they are willing to invest in business but are otherwise new to investing.

Businesses in their earliest stages may only have access to pre-investment funding from close personal contacts. At this point in the business lifecycle, you probably don’t have hard evidence or any solid indicator that your business will be successful in the long run.

Pre-investors are investing in you personally because they know you, trust you, and believe in you.

They don’t provide a lot of money upfront; they give according the amount that they can afford.

  • Passive Investors

Passive investors limit the amount of hands-on management they personally provide to assets they own. Instead of playing an active role in the management of a company, a passive investor will defer to the management team’s operational and financial decisions.

This is commonly the case for investors who do not own a controlling stake in the company they invest in. Passive investors usually invest in companies with management teams they believe in and rely on those teams for expertise and guidance.

  • Angel investors

Angel investors are one kind of passive investor. These are high net-worth individuals looking for brand-new businesses and startups that they believe will perform well in the long run. Often, these businesses are so small and new that they have not yet started producing any profits. As a result, angel investors can make hundreds of times their initial investment when they choose a successful asset.

This investment attracts a great deal of risk. Angel investors often don’t have any real control over how companies are run, and there are no guarantees that a startup will ever become an industry leader. Beyond informal influence over company leadership, angel investors have little say in whether a startup succeeds or fails.

  • Active Investors

Active investors take a direct approach to managing their portfolios. They are directly involved in monitoring the way their assets are run. In a private equity context, active investors may bring in new people to help push up management teams and directly make changes to the day to day running of the company.

Active investors look for opportunities to make operational, financial, and administrative changes based on their own knowledge and experience. As a result, active investing usually is highly risky, however when successful, there’s a high gain.

In order to exert influence over company operations, active investors typically aim for a controlling stake. This also increases exposure to risk, so these investors spend a great deal of time and energy on financial analysis and valuation before buying in.

  • Venture Capital Firms

Venture Capital firms are a type of active investor. These firms invest in businesses a little later in the development life cycle than angel investors. In the typical venture capital case, the business already has a proven business model in place and may already be generating revenue. However, it needs more resources to scale its operations sufficiently for generating significant profits.

They are less risky than angel investors, however their earnings are way lower than for angel investors.


  • Private Equity Firms

Private equity firms look for mature, well-established businesses to invest in. In many cases, they seek a majority stake in a business and use proven leadership skills to improve business performance over time. This strategy is usually less risky than venture capital or angel investment, especially when the private equity firm takes a majority stake and brings its own management experience to the table.

Which Investment Strategy Is the Right fit for Your Business


Professional investors usually look for businesses that have specific characteristics that fit their portfolio. They may be looking for businesses that operate in an industry or geographical area they know well. They may focus on businesses of a certain age, with a certain market capitalization, or with specific operational or financial needs.

The better you know your business, the easier it will be to find an investor willing to hear your pitch and provide the resources your company needs. Researching investor portfolios is also a great way to filter potential investors. Compare your company to the other companies in the investor’s portfolio and ask yourself how similar your company is to the others on the list. If you find someone who consistently invests in companies like yours, the chance of attracting their investment is much higher


If you are an investor hoping you to invest, you should focus on protecting your interests and avoiding risks. At Netsheria International, we have an experienced team of lawyers who can offer you the relevant legal documents for purposes of securing your investment as well as protecting you from any risks. For more information, you can go to our website www.netsheria.com


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