...NAME: SIMENI ENEYI GABRIEL DEPT: ECONOMICS TOPIC: DIFFERENCE BETWEEN VENTURE CAPITALISTS AND ANGEL INVESTORS EMAIL: gabrielsimeni@gmail.com DIFFERENCE BETWEEN VENTURE CAPITALISTS AND ANGEL INVESTORS Both are affluent individuals who provide capital for a business start-up, usually in exchange for convertible debt or ownership equity. However, they differ from Friends and Family who will typically invest very early when all one has is an idea. The prevailing challenge is people would rather invest in the company rather than the individual. In this regard, it is okay to say that Angel Investors look for same things as Venture Capitalists, but their differences play a hard role in shaping the financial strategies and the future of the business. Venture Capitalists are one way to raise serious amount of capital but as you may imagine there are pitfalls. The final vote on ‘the right of sale’ will also most probably be a mandatory right for them. Since Venture Capitalists main motivation is “Return on Investment as Soon as Possible” they always have an almost manic desire to take over every entrepreneur as quickly as possible and they care less where that return comes from as long as they are able to receive a massive bonus for the risk and skill that they have invested. More appealing to an entrepreneur starting-up is to seek out a business angel investor that is interested in the line of work you are involved in, as they will either take an equity...
Words: 1601 - Pages: 7
...Difference between angel investor and venture capitalists Financing Options for Entrepreneurial Ventures: 1. Internal Funding a. Founder, Family and Friends (3Fs) b. Bootstrapping : internally generated retained earnings, credit cards, home mortgages, and customer advances c. Business Alliance: forming “cooperative agreements” with another firm to generate revenues and reduce costs 2. External Funding a. Angels: are successful business people who invest their own money. There are over 250 angels groups * Involved in the early stage of entrepreneurial ventures * Invest in technologies or in business in the areas that are known to them * Capital requirement of $50,000 to $250,000 * Sales potential of between $2 million and $20 million within 5 to 10 years * Invest alone or in angel organizations b. Venture Capitalists: are financial intermediaries, they take investors’ capital (not their own) and invest it directly into portfolio companies They utilized to fund the internal growth of companies and their primary goal is to maximize its financial return by exiting investments through sale or IPO. * Funding later stages firms * New emerging and middle-market private companies that will go public or merge within 4 to 7 years * Have $5 million to $200 million in sales with a billion-dollar potential, growing 25% per year, with gross margin 40% to 50% or more ...
Words: 321 - Pages: 2
...Financing Excerpts from Angel Investor Study Venture Support Systems Project: Angel Investors MIT Entrepreneurship Center Release 1.1 February 2000 The Venture Support Systems (VSS) Project is managed by a team at MIT and HBS. It was funded by a generous donation from Ronald A. Kurtz (MIT 1954) and David Kurtz (HBS 1992). Other reports from the VSS Project include cases, teaching notes and monographs. This report was prepared by Lucinda Linde (Marlin Capital) and Alok Prasad (Pittiglio, Rabin, Todd & McGrath) under the direction of Kenneth P. Morse and Matthew Utterback of the MIT Sloan School and Howard Stevenson and Michael Roberts, of the Harvard Business School. �2000 MIT Entrepreneurship Center Executive Summary Angel investors are an important and growing source of financing for the start-up and initial growth phases of technology ventures. This study focused on high net worth angel investors with entrepreneurial backgrounds. Many of these angels invest in first time entrepreneurs before the entrepreneurs secure venture capital financing. Besides earning a strong return on their investment, these experienced angels are motivated to “give back” to the community which helped make them successful. Very little published data is available on angel investing and little research has been done on the experienced angel investor. It may be valuable for first time entrepreneurs, venture capitalists, regulators and other members of the venture community to understand...
Words: 3779 - Pages: 16
...Venture capital (VC) is monetary capital gave to early stage, high-potential, development new businesses. The venture capital store procures cash by owning value in the organizations it puts resources into, which typically have a novel innovation or plan of action in high innovation businesses, for example, biotechnology and IT. The ordinary venture capital speculation happens after the seed financing round as the first round of institutional capital to store development (likewise alluded to as Series A round) in light of a legitimate concern for creating a return through a consequent acknowledgment occasion, for example, an IPO or exchange offer of the organization. Venture capital is a sort of private equity. In addition to angel investing, equity crowd funding and other seed funding options, venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering . In return for the high risk that venture capitalists accept by putting resources into little and less develop organizations, venture capitalists typically get huge control over organization choices, notwithstanding a significant allotment of the organization's proprietorship (and subsequently esteem). Venture capital is likewise connected with occupation creation (representing 2% of US GDP), the learning economy, and utilized as an intermediary measure...
Words: 1467 - Pages: 6
...An accepted fact among investors is that the higher the returns on an investment, the higher the risks are. Safe investments carry low risk, but the returns are also lower. Different levels of risk apply to common and preferred stock, as well as to corporate bonds. Corporate bonds generally have the lowest level of risk of the three investment types, but also offer lower returns, in spite of regular dividend payments. Common stocks have the highest risk of the investments and the highest potential returns. Common Stocks When you purchase stock in a company during a public offering, you become a shareholder in the company. Some companies pay dividends to shareholders based on the number of shares held, and this is one form of return on investment. Another is the profit realized by trading on the stock exchange, provided you sell the shares at a higher price than you paid for them. The risks of owning common stock include the possible loss of any projected profit, as well as the money paid for the shares, if the share price drops below the original price. Preferred Stocks This type of stock is rated by the agencies in the same way as corporate bonds are, which is based on the company’s performance, and gives buyers a degree of reassurance. The stock is purchased either online or through a broker, and offers a variety of different share options compared with common stocks, which are relatively straightforward. Most preferred stocks pay shareholders a fixed dividend based on profits...
Words: 1480 - Pages: 6
...recreational equipment, and even rare collectables. The advantage of this type of financing is that you do not have to borrow from the bank, but if you are a beginner Entrepreneur you will hardly have enough of own funds to open a big business. 2) Equity financing. This is a type of financing is essentially an exchange of money for a piece of ownership in a new business. This type of financing can usually be provided by venture capitalists and angel investors. An advantage of using equity financing as a way to raise capital is that the new business owner can pay back the loaned amount throughout a fixed duration of time. In addition, the new business owner can focus on making their product profitable rather than worrying about paying back the investors immediately. One possible disadvantage of utilizing equity financing to raise capital is that the new business owner may lose partial or complete autonomy over their new business. 3) Angel investors and venture capitalists New business owners can also raise capital from angel investors and venture capitalists through equity financing. By investing in the equity of a business,...
Words: 430 - Pages: 2
...Walnut Venture Associates: Case Questions (HAND-IN) (1)Angel investors are affluent individuals who provide capital(money) for a business start-up. Angel investors usually receive convertible debt or ownership equity in return for their investment. Angel investors are different from venture capitalists since angels typically invest their own funds meanwhile venture capitalists manage pooled money of others in a professionally-managed fund. There are 2 forces exacerbating the trend towards the prominence of angel investing which include the fact that a generation of entreprenuers had “cashed out” and were looking to utilize their wealth and expertise by investing in start-ups, and that venture capitalists usually deployed capital in larger amounts that $1 million or below. An entrepreneur would seek financing from an Angel because Angels not only have the money to help finance the company, but they also have knowledge and experience that is very helpful to start-ups. The experience and track record of Angels (who usually have started their own company, served as a CEO, etc) is an asset that can’t be matched by a venture capitalist. Part of the reason of this again is because the Angel investor is investing his or her own money, something that will truly incentivize the Angel do to everything in his or her power to make the company succeed. 1) What is your first impression about the RBS opportunity based on the business plan? My first impression about the RBS opportunity...
Words: 482 - Pages: 2
...• • • Gordon Biersch Case Questions: 1. Identify the key factors responsible for the success of Gordon Biersch to date. What concerns, if any, do you have as the company looks ahead? 2. Evaluate Gordon Biersch's organizational alternatives to realize its growth ambitions. Recommend a course to follow? 3. Evaluate Gordon Biersch's efforts to raise outside capital. What would you have done differently? 4. Which offer, if any, should Gordon Biersch accept? Why? How should they proceed? 5. Assume for discussion purposes that Lorenzo Fertitta's proposal is the preferred option. What are the key issues for Gordon and Biersch to negotiate? What positions should they take on each one? Table Of Content: Case Summary Critical Issues Critical Analytic Tools Recommendation Answers to Case Questions Bibliography Case Summary The masterminds behind Gordon Biersch were two individuals, Dan Gordon; a qualified brewing engineer from the esteemed University of Munich, Germany, and Dean Biersch; who had a passion for food service and a vast experience in the food and beverage sector. Their unique idea of a microbrewery and fine dining restaurant stemmed from a law amendment of California in 1983 which allowed brewing and serving of beer in the same locale. They envisioned the concept of providing high quality fine dining with outstanding service in an attractive ambiance featuring exceptional German-style lagers in on-site breweries. Their target...
Words: 5459 - Pages: 22
...Michael Field Professor Steven Droll New Business Venture and Entrepreneurship May 24, 2014 Table of Contents | Section | Page | Abstract ………………………………………………………………….. | 3 | Introduction – Gaining Financing to Execute Business Plan...……………… | 4 | Source of Competition………………………….……….……………………. | 5 | Venture Capitalists Pursuit of Green Technology….……………………….. | 6 | Timing of Investment by Venture Capitalist…………………………………. | 7 | Friends and Family Financing……………………………………………….. | 10 | Angel Investor as Other Source of Capital………………………………….. | 12 | Conclusion …………….…………………………………………………….. | 13 | Abstract Shane Eten and Ryan Begin need to gain $250,000 in financing to launch their business venture, FEED Resource Recovery. Their business plan has gained some traction in presentations to venture capitalists without anyone taking the plunge. They have also gained some interest from potential customers, but have not secured commitments from anyone. Their current efforts focus on securing funding from available sources. As they approach potential investors, they need to acknowledge the possible downsides to their business plan including the invasion of competitors into their identified markets as well as a realistic valuation for the business based upon their lack of customers and lack of product prototype. Nevertheless, their focus on funding could emphasize friends and family as well as angel invstors. Gaining Financing to Execute Business Plan ...
Words: 3716 - Pages: 15
...Running head: BOOTSTRAPPING FOR NEW VENTURES BOOTSTRAPPING FOR NEW VENTURES Antoinette Brown Metropolitan College of New York BOOTSTRAPPING FOR NEW VENTURES Abstract Bootstrapping, frequently regarded as a means to an end when there are no other options to finance a business. Entrepreneurs commonly use bootstrapping practices to help get new ventures up and running. For most small start ups, the process of securing financial backing is risky. When outside capital financing, venture capitalists, banks, and angel investors do not exist Bootstrapping is entrepreneurship in its purest form. It is the transformation of human capital into financial capital. The overwhelming majority of entrepreneurial companies financed through this “highly creative” process, which involves the use personal savings, credit-card debt, loans from friends and family, and formal sources of private equity (Freear, Sohl, and Wetzel, 1995). BOOTSTRAPPING FOR NEW VENTURES Bootstrapping Risks and Rewards When the investment banker says ‘NO’ the entrepreneur relies on himself or herself to raise capital by bootstrap financing. Bootstrappers have to be resourceful to a certain extent. The entrepreneur finds other creative ways to make-do or they do without. Bootstrappers consider strategies that can essentially reduce risks connected with their new ventures. By creating a business that make available products or services and needs little or no inventory, the entrepreneur can make...
Words: 950 - Pages: 4
...The Many Faces of Start-Up Financing All entrepreneurs face a similar challenge in the infant stage of their new venture: raising capital. While successful companies in their adolescent years can display steady cash flows and solid customer bases to potential investors, companies in their initial stages often cannot. This poses the challenge of obtaining capital sources from entities that may or may not have many reasons to believe in a new company’s ability to perform. However, despite the extensive challenges, there are multiple potential sources of capital that entrepreneurs can strive to obtain. Whether relying on smaller players like friends and family or crowd funding, or reaching out to larger, institutional investors such as angel investor networks or venture capital firms, business owners do have options when it comes to finding the capital they need to get their business off the ground. However, some routes make more sense than others depending on the specific company’s situation and objectives. Typically, a new business begins with something very simple: an idea. Sometime the individual spends years developing and tweaking the idea, and other times it simply comes to them in an instant. However it comes, once it does the entrepreneur needs to begin turning that idea into a more tangible concept. This almost always requires capital, whether for manufacturing a product, developing software, or hiring outside consultants to help develop the idea. There are many ways...
Words: 1878 - Pages: 8
...Hill Contents 1 Venture Capital 4 2 Mechanics of raising equity capital 5 2.1 Equity financing for private companies – Sources for funding 5 2.1.1 Angel Investors 5 2.1.2 Venture Capital Firms 6 2.1.3 Institutional Investors 6 2.1.4 Corporate Investors 6 2.2 Outside Investors 6 2.3 Exiting an Investment in a Private Company 7 3 The process of start-up funding 8 3.1 Idea and co-founder stage 8 3.2 Family and friends stage 8 3.3 Seed or angel round 8 3.4 Venture Capital Round 8 4 The Initial Public Offering 10 4.1 Advantages and Disadvantages of Going Public 10 5 Key Elements for successful Entrepreneurship 11 6 The importance of Silicon Valley in the U.S. venture capital system 13 6.1 Venture Capital Investment in the U.S. 13 6.1.1 Venture Capital Investment since 2006 13 6.1.2 Investment by industry 13 6.1.3 Investment by regions 15 6.2 Evolution of Silicon Valley 15 6.3 Silicon Valley – an advanced high tech entrepreneurial habitat 16 6.4 The Power of Clustering 16 6.5 Features of an advanced high tech entrepreneurial habitat 16 6.6 The high-tech habitat: Value-added support 17 6.7 Impact of Stanford University on Silicon Valley 18 7 Entrepreneurship and Funding - Differences between Europe and U.S. 19 7.1 Venture Capital Investment in Austria and Europe 19 7.2 Development of Private Equity in Austria 20 7.3 Development of Private Equity in Europe 20 7.4 Venture Capital Investors...
Words: 8851 - Pages: 36
...Alternative Financing Options for Small Businesses FINANCING For more information, contact: The Business Link Toll-free: Fax: Email: Website: 1 800 272-9675 780 422-0055 (Edmonton) buslink@canadabusiness.ab.ca www.canadabusiness.ab.ca A Member of the Canada Business Network The Business Link is a not-for-profit organization supported by the Governments of Canada and Alberta, as well as other organizations committed to serving Alberta’s small business community. Disclaimer: The information presented in this document is intended as a guide only, and while thought to be accurate, is provided strictly "as is" and without warranty of any kind. The Business Link, its employees, its directors and members, its agents or contractors will not be liable to you for any damages, direct or indirect, or lost profits arising out of your use of information provided within this document, or information provided within The Business Link's websites. This material may be used, reproduced, stored or transmitted for non-commercial purposes; however, The Business Link's copyright is to be acknowledged. You may not use, reproduce, store or transmit this material for commercial purposes without prior written consent from The Business Link. © 2013 The Business Link ALTERNATIVE FINANCING OPTIONS FOR SMALL BUSINESSES (07/2013) Content Content ........................................................................................................................ 1 Purpose...........................
Words: 3434 - Pages: 14
...Indiana University, Bloomington, IN 47405, USA Abstract This article examines the economics of ®nancing small business in private equity and debt markets. Firms are viewed through a ®nancial growth cycle paradigm in which different capital structures are optimal at dierent points in the cycle. We show the sources of small business ®nance, and how capital structure varies with ®rm size and age. The interconnectedness of small ®rm ®nance is discussed along with the impact of the macroeconomic environment. We also analyze a number of research and policy issues, review the literature, and suggest topics for future research. Ó 1998 Published by Elsevier Science B.V. All rights reserved. JEL classi®cation: G21; G28; G34; E58; L89 Keywords: Venture capital; Small business lending; Bank; Mergers 1. Introduction The role of the entrepreneurial enterprise as an engine of economic growth has garnered considerable public attention in the 1990s. Much of this focus * Corresponding author. Tel.: 1 202 452 2903; fax: 1 202 452 5295; e-mail: aberger@frb.gov. 0378-4266/98/$19.00 Ó 1998 Published by Elsevier Science B.V. All rights reserved. PII S 0 3 7 8 - 4 2 6 6 ( 9 8 ) 0 0 0 3 8 - 7 614 A. N. Berger, G. F. Udell / Journal of Banking & Finance 22 (1998) 613±673 stems from the belief that innovation ± particularly in the high tech, information, and bio-technology areas ± is vitally dependent on a ¯ourishing entrepreneurial sector. The spectacular success stories of...
Words: 30009 - Pages: 121
...deficiencies affecting its development, but has some opportunities to develop to make up for the weaknesses. And the school shop in performance of the advantages and disadvantages, should pay attention to the issue of risk. Based on analysis, and the strength of the school shop, the report recommends: the relationship with the school shop and 4ps, and focus on the need of consumers. Following these recommendations, the school shop can be respected in school as well as more spare for development. To illustrate the store opened should be paid attention to in the school, the combination of 4Ps and market mix analysis. Such as how to choose the investment business, how to organize a good team, how to generate good ideas, if avoid venture. 3 Introduction The school store just build still belongs to small business, to expand the development space of it, need to think outside seek economic support. If the school shop which wants to expand...
Words: 2273 - Pages: 10
