WHAT IS INVESTOR?DEFINITION AND MEANING.

Investor – What is an investor?

An investor or investor supports entrepreneurs or companies with an investment and increases them in the long run. Small companies or startups are often dependent on the support of investors to start up or expand their existing small business (see also our lexicon entry to the small business). The financial market differentiates into private and institutional investors.

 

The private investor as an investor

Private investors, also known as retail investors, are all investors who do not have a financial education or who invest on behalf of a company. They are protected as private customers by Section 31a (3) WpHG and enjoy special rights in financial advice. For example, financial institutions and advisers may only advise investing in a company if the private investor is completely informed about the nature of the investment, knowledge gaps are closed and investment objectives are defined that correspond to the expected realistic distributions by the investment. Investing is possible from just a few thousand euros. (Theoretically, crowdfunding campaigns are also a way of looking for investors, whereby investors and founders agree that, apart from a gadget or a personal thank you, no preferential treatment or financial benefits will accrue to the investors.) Investments are usually made in the form of Securities (see also our lexicon entry for the share). These rise or fall with the success of the company in the course and can be sold later. If financial services providers advise a private customer on investments, the advisory process is recorded in accordance with section 34 (2) WpHG. The providers undertake to assess the competence of investors and to propose a suitable investment plan.

 

The institutional investor

Professional clients, who already have all the necessary information and experience, can choose investments in accordance with ยง 31a (2) WpHG that either meet their investment objectives or fit their financial circumstances. The investment advice and protection provisions of institutional clients are regulated in the MiFID Directive. Even professional investors can ask their financial service providers for a higher level of protection if they want to invest in risk assets or significantly increase their investment level.

 

Investor looking for a company

Startups or entrepreneurs who are looking for investors can take advantage of numerous online offers that connect them with potential investors. Here, companies can usually choose between looking for private entrepreneurs or professional investors. In the search for investors, new founders should pay particular attention to the reliability of the investors and set the amount of the start amount only as high as it is actually needed. Strategic investors with many years of experience can usually share their knowledge about start-ups and success with the new founders. Investors who offer higher sums of money also expect accordingly fast and high profits. If the entrepreneur can not meet these needs, he loses investors quickly.

 

Make clear agreements with investors

To convince an investor, a good business plan or good numbers are needed. Investors want to gain insights into the business idea or the balance sheets of recent years in order to assess their investment risk.

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In negotiations with investors, the framework should be clearly defined. The right to speak and the influence of the investor should be contractually maintained, otherwise there may be problems with the flow of money and the realization of one’s own idea.

The benefits that an investor brings are obvious. This allows entrepreneurs to benefit not only from the money, but also from the experience and network of investors. In addition, you have no debt risk as with a bank loan.

Entrepreneurs should weigh up an investment

Anyone who has the opportunity to bring his company with investor capital forward, should consider this opportunity well. With the money of the investors open up many possibilities and there is not the same debt pressure as with a bank loan. However, with this cash injection is always associated with a royalty, which can be problematic.

Without a clear investor contract, no entrepreneur should work with an investor. Entrepreneurs who do not want to be talked into but want to continue their business on their own may have problems with investors. By providing money, there is always an influence investors can have on the company.

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