7 Types of Late-Stage Investors to Know
COO & Co-Founder
COO & Co-Founder
Among the many individuals and firms that invest in various companies, only a handful reach as far as late-stage companies. When you’re hunting for sponsors during this lifecycle, you must know how to grab their attention. However, that’s nearly impossible to do without knowing some vital characteristics of late-stage investors. Here’s a round-up of investor types that typically support late-stage companies, along with some helpful traits.
For many professionals, traditional venture capital (VC) investors are the go-to supporters during funding rounds. And for a good reason. These sponsors typically involved themselves in rounds up to around $50 million. However, most VC investors expect (or require) a seat on the board. Even though they often like to get their hands dirty, it’s not all one massive power struggle. Many times, VCs have mounds of helpful scaling advice and operating guidance to offer.
One interesting trait of traditional VCs is that they’re frequently highly focused on unique business metrics. These include macro market trends, overall business strategy, unit economics, and what makes your business different from others. Also, VCs tend to hone in on your company’s sustainability and potential for longevity. In short, many of them are genuinely in it for the long haul.
Like traditional VCs, angel special purpose vehicles (SPVs) tend to sponsor $1 million to $50 million in Series A and beyond. Most of the time, these investors are no strangers to your company. Most SPVs interested in investing in your company have already done so during another funding round. This strategy is merely a way for them to increase ownership.
SPVs frequently work as part of a syndicate but can also lead a round. When they lead, SPVs behave more like traditional VCs. Some companies experience a slight pushback from their current VC. More than anything, it boils down to logistic issues, stock votes, or process problems.
SPVs thrive on momentum; they want to be a part of the rush. However, they don’t jump on any ole bandwagon. Instead, SPVs are fervent when it comes to doing full due diligence on a company. They will thoroughly examine your team, growth rates, financials, and market trends before committing.
Although you might have always depended heavily on traditional VCs, growth funds are an excellent option if your financial goals fall between $25 million and $500 million. These investors typically look for valuations of $100 million to $10 billion, so it might be the perfect option for your company if these figures look familiar.
Unlike traditional VCs, growth funds tend to be less hands-on. They aren’t hoping to guide you or advise you; instead, they are glued to the numbers. Growth funds pay close attention to growth rates, customer acquisition costs, and other factors in unit economics.
If you want to impress them, keep this numbers-driven persona in mind. Focus on financials and your long-term goals. When your ducks are in a row, these key metrics will attract growth fund investors.
Hedge fund investors tend to focus on late-stage companies launching rounds around $500 million or more. We’ve seen a handful of hedge funds become involved in Series A rounds, but they usually dive into the game later, investing about $10 million to $500 million.
These investors have been around the block once or twice and are famously savvy. If you can glean anything from their wisdom, do it — they could write books! Strangely enough, most hedge fund investors aren’t interested in occupying a board seat, but they are undoubtedly leaders in large markets.
Think about how a public investor operates, and you’ll peg the thinking pattern of a hedge fund investor. Usually, they’re not as focused on valuation as they are on finances. If you want to catch their attention, highlight your underlying numbers and longer-term cash flows.
Like hedge fund investors, private equity fund investors typically aim at sponsoring later-stage rounds, from $10 million to $500 million. However, some Series A and B rounds have enjoyed their company in the past. In fact, private equity firms are the most active investors for unicorns and other companies undergoing later rounds.
The best part of private equity fund investors is who they know. Most of them have a massive and diverse network, potentially opening up doors for various introductions for your company. Unfortunately, some private equity funds create issues with term sheets, so do your due diligence on the investor before diving in headfirst. Also, get referrals and talk to your network of professionals for their advice.
As with many investors, private equity funds are numbers-driven. They often focus on growth rates, revenue, market dynamics, etc. Impressing them with solid numbers is usually the way to go.
It’s safe to say that public market investors play with large numbers. They typically scope out valuations in the hundreds of millions to billions, investing up to $500 million. These investors are old-school “smart money.” They can play with stock values like kings, so keep that in mind when teaming with them.
Public market investors play a very long game. Once they get a hold of stock, they don’t often let go — even post-IPO. And they like to look over the IPO hill at core financial metrics, competitors, etc. Public market investors are trusted capital. Having these investors in your corner sends the message that your company is the real deal.
Strategic investors might come into the picture during early rounds, but keep this ace up your sleeve for later-stage rounds. They typically invest tens of millions to more than a billion dollars. Valuation isn’t a deal-breaker, and like private equity funds, strategic investors have a valuable network that could benefit your company drastically. These investors are the caffeine in your professional network, introducing core ties and wisdom you never knew you needed (but now can’t live without).
One of the reasons strategic investors should skip out on the early rounds is that it might “signal” off other investors. These investors live for strategy. They will go to great lengths to learn about your business. If the sponsorship wanes, however, they might end up competing with you down the line.
Keep in mind that a strategic investment often comes before an acquisition offer. The investment is merely a way to become familiar with your company before taking the big leap. Have solid plans for the future, intricate industry knowledge, and forward-thinking insight to impress strategic investors.
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