Funding & Investors refer to an investment strategy that involves a manager or fund manager acting as an intermediary between the investor and the company or organization that is seeking funding. In finance terms, the role of the fund manager is to diversify the portfolio of investors to ensure that the risk/reward profile is maintained and that the investment is profitable for all members of the investment team. This enables the investors to invest in a wide range of different investments while also diversifying their own risk. The fund manager typically plays a key role in the structuring and management of the investment fund. This role is similar to that of the CEO of a corporation that makes large equity investments.
Typically, when a large amount of capital needs to be raised, finance companies will arrange for a venture capital or an investment fund in order to fulfill the need. These funds can be used by angel investors or venture capitalists who provide start up capital and/or purchase at least a 50% stake in the company in exchange for a note or equity investment. Funds can also be arranged by corporations that need additional capital for an impending acquisition. Private investors are typically not involved in the process of arranging funding & investors. A private investor will typically rely on the financial statements and credit rating of the company in order to provide money for a start up or acquisition.
There are many different types of funding options available to both the company seeking funding and the investors that provide the capital. Typically, venture capitalists and angel investors are the most common forms of outside financing provided. However, there are other potential sources of funding for a company such as debt and preferred stock offerings from mutual funds, banks, and other accredited investors. In addition, there are several other forms of funding including leases, lines of credit, and purchase agreements. These various methods of securing additional funding can be used by almost any sized company.
One of the primary purposes of providing funding & investors is to ensure the success of a company. Investors generally have a stake in determining the success or failure of a company since they are given a vested interest in the outcome of a business. Therefore, investors are interested in providing funding in return for shares of the ownership in the company. However, there are also investors who are not primarily motivated by the return on their investment but by the opportunity to acquire control of a business or other asset. An example of this type of investor is a private buyer.
When providing funding and investors to a business it is important to clearly define the terms of the investment. For instance, if the investment refers to obtaining new working capital for a start up, this need not be defined as a loan. As long as it is understood that the purpose of the capital is to finance the start up and that repayment will be based on the success of the business, most angel investors and venture capitalists are comfortable providing such funding. However, if the purpose of the capital is to provide seed funding to a new business, it is necessary to detail exactly how much of the business will be provided to the investors as compensation.
As a general rule, most angel investors and venture capitalists require at least a 50% stake or equity interest in the proposed venture. This is often the case when companies are highly risky investments. Additionally, many companies that require additional capital investment require one or more co-investors. Again, in the case of start ups, most co-investors are wealthy individuals with a stake in the company that are willing to purchase some of the shares for a minimal price. In order to obtain funding from venture capitalists and angel investors, the company must demonstrate an expected return on investment. A company must also satisfy the expectations of the funding source regarding an acceptable risk level.