Investors and their incentives by Aaron Harris

TL;DR - Founders should be mindful of the different goals and incentives driving each type of investor they might encounter.

Helpfulness - 5

Tags - investor mindset, incentives, vc structure, range of investors

Questions addressed:

  • What are the different types of investors that founders are likely to encounter?
  • What motivates each of these investor groups?
  • How are investor-founder relationships structured in each case?

Summary:

  • Classic VCs invest LP money to earn management fees and, more important, a percentage of investment profits.
    • Incentivized to get a big return on investment / multiple.
  • Angels invest their own money directly, and fall on a spectrum from knowledgeable ex-founders to inexperienced wealthy people.
    • Often simply motivated by a desire to invest in a startup, regardless of outcome.
  • Also covers accelerators, syndicates, crowdfunders, family/friends, family offices, corporate investors (direct and through venture arms), governments, endowments, seed funds, hedge funds, mutual funds, and sovereign wealth funds.

Follow up links:

LP definition,