Venture Capital
There are many ways to finance the launch, acquisition or growth of a business. Depending on the stage the business is at, its profitability, structure and plans one form of funding is more appropriate than the rest. Generally speaking investors look to the balance between risk and return on investment as the primary consideration for their involvement. However, there are situations when an investor may invest in a venture because of personal reasons or preferences.
Here is an idea of different types of investors for different types of opportunities:
Love Investors: These are individuals that invest in their family and friends, regardless of the business. In many cases, they may not even know where the money is going nor is it important to them how much money they make. They are loaning (sometimes giving) money to a loved one to help them out.
Angel Investors: These are individuals that are visionaries and love stories. They tend to invest in an individuals ability to hold their vision and to implement the plan to make it happen. Some may think they are investing in the business, but reallly they are investing in the individual for he will be the greatest determinant of success or failure. These investors enjoy the idea of undertaking a new journey because they think it will change the world and in the process make them a lot of money.
Seed Investors: These investors are comfortable assuming great risk in exchange for higher returns on their investment. They believe that the best opportunities are before the other investors find out about the opportunity and invest in them. Their investment may not be secured by collateral, but they do often have side agreements with the entrepreneur to protect themselves. It is not uncommon for an entrepreneur to attract a seed investor after they have an understanding with a venture capitalist or other financiers that they will invest once the entrepreneur comes up with a certain amount of capital. Seed investors tend to be very short-term and expect to be paid out within 3 months to one year.
Debt financing: Individuals, institutions and banks can provide various forms of debt financing, usually secured by assets of one form or another. This tends to be the least expensive type of financing, but hard to get in early stages of the business. It is more likely to be used in the acquisition of conventional businesses depending on the financial structuring.
Venture Capital Investors: Are individuals that are generally fairly sophisticated when it comes to understanding risk and return. On average Venture Capitalists expect a 40% annual return on investment. This means that since 6-7 of the businesses they invest in don’t make money, 2 make some money and 1 becomes hugely successful, that they rely on that 1 to make up for the rest.
Venture Capitalists with provide a wide offering of services to assist entrepreneurs in taking their business and forming it into a viable offering to attract subsequent investors, partners, suppliers, clients and management. For additional details on these services visit the page on this website titled ‘VC Services Offered’