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.
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.