Angel Investors – Angel investors are typically high net worth or affluent individuals who can afford to make earlier stage investment in a new venture. They will ask for a smaller percentage of ownership than larger venture capital firms and can provide mentorship, access to experts and other networks, and potentially additional funding at a later stage.
Every deal is unique, however consider Angel investors or any capital infusion within the context of how it will help you scale your venture or reach a higher rate of profitability. Angel investors are looking at how their investment will take your business to a scalable level and ultimately make a multiple of return at a later date. This requires your business to have some type of clear exit strategy, whether it’s being purchased by another company or investment firm, buying out the investors with profits, or making an Initial Public Offering (IPO).
Venture Capital – Venture capital firms provide capital unsecured by assets to young, private companies with the potential for rapid growth. Typically Venture funds would come after a round of initial investment and phase of growth or business milestones. This could relate to level of adoption, clinical or legal hurdles, or success of a new technology.
Venture capital is also an active rather than passive form of financing. These investors seek to add value, this requires active involvement; almost all venture capitalists will, at a minimum, want a seat on the board of directors.
Although investors are committed to a company for the long haul, that does not mean indefinitely. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments. An investor will be considering potential exit strategies from the time the investment is first presented and investigated.