The goals and interests behind an investment or an acquisition can be very diverse, and so can the profiles of the investors who buy all or part of a company.
In these cases, knowing what types of investors exist will be very useful for deciding which type of investor we want for our company, since not all of them have the same goal, and which one will best fit the objectives of the transaction we are planning and the business we have built over the years.
What types of investors are there?
We can group them into different categories based on their characteristics, the deals they carry out, and the goals they pursue.
Strategic buyer
Strategic buyers are companies with extensive knowledge and expertise in the market they operate in that seek inorganic growth by acquiring a company.
Broadly speaking, their goal is to use the acquired company to strengthen their own strategic capabilities in a given industry.
Other motivations for this type of investor include diversifying their activity by adding new business lines, expanding into new markets, or extending their activities into related business models.
This type of investment usually has a long-term horizon and focuses on gaining a strategic advantage, whether through growth, synergies, positioning, the customer base, or distribution channels.
Financial buyer
For a financial buyer, the main goal is usually to generate a return on the investment. For this reason, they don't need to specialize in a particular industry and can operate in very different markets or types of companies.
In other words, what this type of investor looks for are strong growth opportunities to grow the business and, at some point, usually in the medium term, sell the company.
Within financial buyers, there are several types:
- Family office
These investors start from the management of family wealth, which may have come either from an inheritance or from the sale of a family business. Depending on their size and the amount of capital available, their management will be more or less professionalized.
Above all, by investing in or acquiring companies, they seek a higher return than they would get from other available alternatives.
- Private equity and venture capital
The main goal of these funds is to invest in companies with high growth potential to increase their value and then sell the shares or equity interests to profit from the investment, both through the capital gain generated as the company's financial and commercial position improves over the life of the investment and through any returns it generates each year.
Within this type of fund, there are venture capital (VC) firms, which specialize in startups, and private equity (PE) firms, which invest in all kinds of private companies.
- Search fund
This is an investment model based on buying a single existing company. When the search fund is set up, capital is raised from various investors and the search for an opportunity begins, studying a large number of companies in order to select one to acquire and manage directly for the life of the investment.
What sets this type of investment apart is that it brings in professionals who get directly involved in leading and managing the company, who have business experience and knowledge, and who focus exclusively on one company: the acquisition target.
The goal is to increase profitability, professionalize operations and, ultimately, increase the value of the company.
- Business angels
In this case, we are talking about people with broad business vision and expertise who decide to invest their own capital in young companies and ambitious projects, where they also share their knowledge and experience with the owners.
The main difference between them and venture capital firms lies in where the money comes from. In the case of VCs, the money usually comes from third-party funds provided by individuals and companies who entrust their money to the VC to manage. Business angels, on the other hand, invest their own money.
- Family and friends
This is perhaps the least professional investor profile, but they usually have a close personal relationship with the company's founder. Their presence is vital in startups' first funding rounds, as they provide the initial push needed to launch the project.
This type of investor usually invests small amounts of money, but enough to help the company get started or, in the case of startups, validate the business model.
Individual investor
When we talk about an individual investor, we mean a person who, on their own, is interested in investing in and buying private companies. It can be an individual or a legal entity that, through small investments, builds its own portfolio of companies or acquires operating businesses to run various activities, bring its own vision, and develop the business from an already established base.
In short, behind buying or investing in a company there can be very different motivations and very diverse profiles, so it is worth considering which type of investor will best match the seller's preferences and goals when approaching a corporate transaction and, ultimately, which partner will be best suited to understand each company's complex reality and the business vision behind it
