Venture Capital, Angel Investors, And Small Business Funding Sources
Venture capital is a type of private equity funding which is provided by venture capital funds or private investors to emerging businesses, mid-stage, and high-stage companies who have been defined to have great growth potential or that have shown great profit potential. Venture capital funds are usually managed by venture capitalists or private equity firms that are often based in California, Washington D.C., or Silicon Valley. There are also many mutual funds and groups that provide these types of investments. Venture capital funds were initially created to help new ventures launch and expand successfully. Venture capitalists monitor the companies they invest in and make their profits based on the amount of capital and equity they have invested in the company.
In the past, venture capital financing was provided only for early-stage companies with promising products and technologies. As new technologies were developed and companies grew in size, the type of venture capital financing available also changed. Today, there are several different financing options available to entrepreneurs who are planning on starting their own business.
Private Equity. Venture capitalists and private equity groups may invest in a variety of ways. They may invest in a startup through an initial public offering ( IPO ) on a stock exchange or through private equity transactions. In addition, some private equity firms fund early-stage companies through acquisition activity. These companies are generally family-owned and operated companies with complementary patents and business models. Other venture capital investors focus on funding new launches through acquisitions of companies with strong strategic factors.
Angel Investors. Angels are wealthy individuals who provide startup capital or invest in larger companies. They typically have either acquired companies through another means, such as through private equity or loans, or have become wealthy through hard work and perseverance. Typically, venture capitalists and angel investors are men. Women have not been as successful in the startup sector. The term, “angel investor,” though, may be applied to female venture capitalists as well as to male entrepreneurs.
Public Pension Funds. Venture capitalists and angel investors provide seed money for start-up companies through pension funds. The pension funds generally have a long history of making solid investments in the companies that will one day provide a substantial return on their investment. The pension funds usually retain these companies for many years until they begin generating a profit and/or the company begins to decline.
SBA Loans. Venture capitalists and angel investors usually rely on what is known as a private lender to provide the seed money for the startup of a small business. These private lenders typically require a great deal of information about the potential business. These entrepreneurs usually need to provide a great deal of personal and business financial information before being approved for this funding. Private financing from pension funds and state and local governments can be much more reliable as it is much less likely that the company will default on its obligations.