Who is a venture capitalist?
Venture capitalist is an individual or a firm that invests in start-up ventures. The term may also refer to an investor who supports firms that are in dire need of funds for expansion. Venture capitalist can be understood as a speculator who envisages a significant output from a new endeavor and assumes higher risks and accountability in expecting higher returns. Especially, every innovative project needs the support of a venture capitalist who will be able to understand and appreciate the new concept and willing to take the high risk involved in launching it in an yet to be tested environment.
Also called as VC or Venture, Venture capital is a kind of equity capital instituted by a private individual or organization in order to support a project at its early stage visualizing high-potential and growth. Since neither profit not loss can be clearly ascertained due to the newness of the project, such initiatives were earlier called as risk capital. A venture capitalist is often different from an angel investor in the sense that he is motivated by logical concerns while an angel investor is moved by emotional concerns in supporting a venture or firm.
What is angel funding? Who is an angel?
Angel funding is the capital made available by an investor with a personal or industry related interest to start or run a venture. Usually an angel investor provides capital to start a business in exchange of convertible debt or ownership equity. The term “Angel” typically stands for an affluent investor who has enough personal money to spare. Angel funding can also be understood as a capital that fills the gap that exists in start-up financing among friends and family who make the venture capital or seed funding required to start a business. Thus, in contrast to venture capital, angel funding can typically mean the second round of capital investment crucially required by high-growth start-ups.
Angel investments are vulnerable to high risks associated with the uncertain nature of the start-up ventures and dilution that may result on account of future investments. Therefore, they look forward to high returns on investments. Often, most angel investors are entrepreneurs or executives who have retired from their services and look forward to invest for reasons that are far removed from mere monetary profits. Therefore, in most cases, angel investors will be in a position to provide highly valuable assistance and ideas in management in addition to mere funding.
What is seed funding?
Seed funding is a sort of securities offering made by one or more individuals connected directly or indirectly with a start-up enterprise. Seed funding is often small in amount when compared to other type of investments and only enough to sustain the operations connected to a business for a certain time period in development till it can fund itself or can potentially attract a prospective investor for its subsequent needs. Generally, seed money refers to the initial funding requirement needed for preliminary operations like research and development. Investors in these cases are often the founders, their relatives or friends.
Seed funding is involved with the greatest risk associated with any business since there is no existing project for the investor to evaluate the outcome. In some cases, seed money can also ensue from the surplus fund owned by an existing enterprise. Investors decide to make seed funding considering the perceived potentiality of the concept and the capabilities and skills of the people involved in the operation.
What is Private Equity?
“Private equities” refers to investments made in companies that are not publicly listed. These shares are typically those that are not traded on any stock exchange. In other words, this term refers to funds invested in securities that are not quoted as against the investment made in publicly quoted securities or government bonds.
This term can also mean a fund that invests its money in private equity in an attempt to restructure the firm by gaining control over it. During the process, the company is taken off the market if it is not already private and a restructuring attempt stretching over many years follows. Once the desired purpose is achieved, the firm may be relisted on the stock market.
Since private equity securities are not listed on a public exchange, transfer of private equity is under strict regulations. An investor desiring to sell his/her stake in an unlisted firm needs to search for a buyer only outside the purview of a marketplace. Usually, returns on private equity ensue in three ways namely a sale or merger, an act of initial public offering, or from the process of recapitalization.