If you’re going to start a business and are in search of an investor, it’s important to know every aspect of finance, inventors, and funding. When it comes to finding an investor and funds, you have to be thorough with major investing options like venture capitalists and angel investors. The world of venture capital and venture financing is difficult to grasp, so the more you understand, the better you’ll be able to position yourself to pitch investors and, hopefully, receive funding.
We’ll thoroughly discuss about angel investors and venture capitalists and by the end, you should not only know how these two types of investors work but also how you should be directing your goals relative to which you’d like to work with.
Venture capital could be defined as a form of personal equity funding that is provided by venture capital companies to big and emerging companies that are deemed to possess high growth potential or that have demonstrated incontestable high growth. Venture capital firms or funds invest in these newly based companies in exchange for equity, or an ownership stake.
Venture capitalists take risk of financing start-ups in the anticipation that some of the firms they decide to support will eventually become successful. Because startups face high uncertainty, Venture Capital investments have the risk of failure. The start-ups are generally based on an innovative technology or business model and they are usually from high-technology enterprises, such as information technology (IT), clean technology, or biotechnology.
An angel investor is an individual who provides capital for a business or business start-up, usually in exchange for convertible debt or ownership equity. Angel investors usually offer support to emerging businesses at the initial moments when most investors are not prepared to offer them funds because of the risk it involves. A small percentage but continuously growing angel investors invest online through equity crowdfunding or organize themselves into angel teams or angel networks to share investment capital, as well as to provide advice to their portfolio corporations.
WHAT DIFFERENTIATES THEM?
The major difference between angel investors and venture capitalists is who is doing the investing, the stages at which they invest, and the amounts typically invested. Angel investors are typically personal, high-worth people or a team of individuals who issue comparatively small amount checks during companies’ early stages.Venture capitalists are not private individuals, instead, they work for a large fund to provide venture funding to businesses at many different stages. Checks issued by venture capitalists are generally much bigger as compared to angel investors.
If you are in the initial stage of your business understandably, It’s highly likely that you’ll think of considering approaching an angel investor. If you think your company is experienced enough to attract an angel investor, then an investor who is well-educated about your industry and understands your targets would be a good choice. The time to opt for venture capital will be transparent to you. When your company would be in a position to generate high rates and data then it would be an appropriate time to approach a venture capitalist.
Other points of differences are:
- An angel investor works independently while a venture capitalist is associated with a firm or a company
- Angel Investors offer financial assistance while a venture capitalist seeks a talent management team and huge market potential.
- Angel investors may want a return of 20 to 25 percent on their investment while venture capitalists expect a much higher percentage.
- Venture capitalists invest more money and business capital than angel investors.
- Venture capitalists invest in already established businesses to avoid the risk of losing investment while angel investors are risk-takers and invest in new businesses and startups.
TOP VENTURES DEALS
There are some notable examples of venture deals and when it comes to that, the infamous Whatsapp acquisition case tops the list.
Facebook’s $22B acquisition of WhatsApp in 2014 is still one of the largest private acquisitions of a VC-backed company. It marked a big win for Sequoia Capital, the company’s only venture investor, for which $60M investment turned into $3B. Sequoia’s success was mainly based on its partnership with WhatsApp founders Brian Acton and Jan Koum.
Facebook’s $16B IPO at a massive $104B valuation proved to be a huge success for early investors Accel Partners and Breyer Capital. At the time of the investment, the company had what was considered a huge $87.5M valuation. The firms led a $12.7M Series A into Facebook in 2005, taking a 15% stake in what was then called “Thefacebook.”
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TO WRAP IT UP
So, in the end, no matter what option you choose, just make sure that your company has a very strong and easy-to-understandable pitch as well as a good strategic plan. If you think that your company is the upcoming big game in the market you would have to convince the investors of the same. And once you do so at the time of choosing an investor, make sure to communicate clearly and go through every query.