Difference between Angel investor and Venture capital and Private equity

Difference between Angel investor and Venture capital and Private equity

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Angel investor and Venture capital and Private equity

No wonder, the percentage of people below 30’s making Billions of Cash is going high in the last few years, thanks to progressive and aggressive investments that are being brought in at the various stages of company development, right from the time of seedling and finally to Initial Public Offering–IPO. But a company or a firm cannot rely upon a single option of investment to upscale and expand the company.

Angel investor and Venture capital and Private equity

The founders need to look at various investment solutions and strategies at various stages of the company’s development. Out of the various sources of funding options available during the transition of a company from a seedling to an IPO, Angel Investors, Venture Capitalism and Private Equity investmentsplay a pivotal role in shaping the company’s future. But these three are quite different from each other, and usually invest at a certain stage of the company’s growth, usually in return for some equity and management control in the company.

Angel Investors

  • Usually invest in a company trusting the Entrepreneur and his/her idea.
  • Investments are usually brought in at the Start–Up / Seedling Stage of the Firm.
  • Acquires a respectful equity in the company and can have a say in taking crucial decisions.
  • Investments can range anywhere from $25,000 to $250,000.
  • Wealthy Individual driven investment.
  • Carries experiences, contacts and other valuable resources along with the investment.
  • Considered as an individual choice and solely depends on an individual entity whether to continue investing into the company or not.

Venture Capitalism

  • Group of individuals or companies that invest after checking the revenue of the company.
  • Usually invest at the development stage, after there has been a steady but minimal flow of profits.
  • Funds are utilized to expand the company at a quick pace and capture the market.
  • Claim a larger stake in the company and takes over the existing management.
  • Has the ability to change the management, make decisions or even go for the sale of the company by simply stopping to invest in the company.
  • Investments usually range over $ 1 Million and can go upto $25M – $50M.
  • Investments are carried on the lines of “High Margin” businesses and industries like IT, Biotechnology and others.
  • Have a wide array of contacts and bring valuable market resources into the company, alongside the investment.

Private Equity (PE)

  • PE is usually comprised of Investment Companies and various funds, ranging from private pension funds, foundations, banks, endowments, etc.
  • PEs usually acquire a full operational and functioning company with cash flows, meaning mature and public companies.
  • Acquisition of whole companies are made through the LBO–Leveraged Buyout Process.
  • Structurally, Private Equity firms use a combination of equity and debt.
  • The investments can range anywhere from $100M to even exceeding over $30Billion, depending on the size and scale of acquisition.
  • PEs are known to revive near bankruptcy companies to profitable venture by brining experience and resources along with them.
  • PEs usually work in terms of numbers initially, and optimize the whole scenario to fit into the numbers which they had thought out.
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4 COMMENTS

  1. A nice article which explains the difference between angel investor, venture capitalists and Private Equity funds. Angel investor as the name suggests, is like an angel for start-ups who provides initial funding along with other resources in exchange for shares in the start-ups. Venture Capitalists usually come at the second stage who assist the company in expansion of business in return for higher stakes and management rights. Private Equity funds are those entities who invest only in high credibility companies who can give the highest returns. PEs have a wide spread network of contacts which can be highly beneficial for the company.

  2. This is a very informative article. I hope that the people in the 20’s who have very fresh ideas can just start with Angel investors. It’s very encouraging to know that investors show an enhanced interest in startups and their ideas. Since they carry all the expenses and costs, the budding entrepreneur can concentrate on other aspects of the business ad make it to the level!

  3. Angel investors are such a blessing for any start-up that does not have the required capital. Most times venture capital is the way that investing is done and it does make sense for a person to do that too. Everyone is looking for some sort of surety of funds and venture capitalism is one of the best ways in which the investor can be assured of the capital being returned.

  4. The article in the tabulated form gives a clear picture of the diffrences while clearly pointing out the pros and cons of it. Angel investors are usually for the start -ups and then come the venture capital taking the full control with the managment of the company and to save from bankruptcy is the Private equity.

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