Types of investors - Security Analysis and Investment Management

Investors can be classified on the basis of their risk bearing capacity. Investors in the financial market have different attitudes towards risk and hence varying levels of risk-bearing capacity. Some investors are risk averse, while some may have an affinity for risk. The risk bearing capacity of an investor is a function of personal, economic, environmental, and situational factors such as income, family size, expenditure pattern, and age. A person with a higher income is assumed to have a higher risk-bearing capacity. Thus investor can be classified as risk seekers, risk avoiders, or risk bearers. A risk seeker is capable of assuming a higher risk while a risk avoider choose instruments that do not show much variation in returns. Risk bearers fall in between these two categories. They assume moderate levels of risk.

The three most common types of investors are generally referred to as angel investors, venture capitalists and corporate. The more you know about their different approaches and expectations to investing the easier your funding search will be. Usually (but not always) angels are best suited to businesses in their early stages, venture capitalists to later stages and corporate investors at the end. All investors, however, have one thing in common: they expect a return on their investment.

Angels:

Angel investors are usually successful business people with spare cash they can invest in high-growth companies. They often invest in industries they know and have contacts in so they can reduce risk and offer expertise, capability and advice.


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