Something huge is coming. This is my favorite line by a comedian with the alias Oga Sabinus or Investor Sabinus. His character is famous for misrepresenting himself as an investor, only to be exposed for being penniless and a lay about. In many of his comedy skits, a recurrent theme is failed money-making ventures, a character trait at odds with his investor image. He usually gets mocked for his investor title as he is rarely seen to display any kind of financial or business savvy. So, if Oga Sabinus is not an investor, then who is?
An investor is typically an individual or firm that puts money into business, financial or property ventures, to name a few, and expects to profit from this investment. The end game of investing is to get more out of the investment than was put into it. Businesses usually have three types of investors
Equity investors, also known as owners, put in money in exchange for part-ownership of the beneficiary entity. They generally realize a profit by selling their share of the company at a higher price than they had initially paid for it. Equity can be obtained from personal funds, family members, friends, angel investors, venture capitalists, etc. Personal funds, family and friends are your preferable options for a start, because the demanded returns are normally not as high in comparison with other options. Your next option after this would be an angel investor. They would normally demand much higher returns and are typically able to invest much more than family and friends.
Debt investors, also known as funders, usually come into play after the equity investor. Their role is less risky as they are usually secured against the company’s assets. Debts usually achieve their gains by way of interest. In reality, most businesses are funded by both equity and debt, combined in various proportions. Debt investments can be obtained from banks as loans or overdrafts. Of course, banks generally charge high interest rates on loans.
IPO investors are generally referred to as shareholders. They usually assume ownership of a part of the company after subscribing to an initial public offering (IPO), also known as a public listing. A public listing is when a company decides to list itself on a stock exchange in order to make its shares available to members of the public for a fee. The shareholders then receive in return part ownership of the company and participate in its annual profits by way of receiving dividends.
Investors are usually the most important users of financial statements. Their level of importance is usually in direct proportion n to the extent of their investment. An 30% owner of a company will definitely be more influential than a 0.005% owner of the same company. Investors are usually very critical of financial statements, much more than regulatory authorities, suppliers and customers, as it helps them to determine the security and profitability or otherwise of their investments. Their scrutiny of financial statements seeks to answer the following questions: What have you done with my money? How much more money do I get in return? Are you being careful enough to ensure that I keep making money? Are you generating all the money that the company is capable of? Are you putting my money at risk? And perhaps, the most important question of all; where’s my money?
