7 Things you most likely don’t know about venture capital Vs angel investors
Venture capitalists and angel investors are two of the most familiar alternative sources of funding. But before starting let us first understand both the terms. Angel investors are rich persons who invest their own money in companies. Venture capitalists on the other hand are the employees of risk capital companies who invest other persons’ money in companies. Now that you know the basic difference between the two let’s know about the things you most likely don’t know about the same.
1. Well did you know that there are five most important things that angel investors look for? If not, let me tell you about them:
· The quality, commitment, passion, and integrity of the founders.
· The potential for the company to become very big and address the market opportunity.
· A thought-out business plan with early evidence of obtaining traction toward the plan.
· Interesting technology or intellectual property and appropriate valuation with reasonable terms.
· Last but not the least, the possibility of raising additional rounds of financing if the process is made.
2.. Now let us know about the things that venture capitalists look for:
· Leadership Ability with a strong team
· Proof of traction and conversion
· Reasonable cash burn rate
· And most important investment thesis Fit.
3. Venture capital firms acquire funds from institutional investors such as pension funds, university endowments, and financial firms or high net worth individuals like former entrepreneurs or angel investors.
4. Angel investments are generally risky investments. Investors look for a return of 25% or more when investing in the company. Also, they don’t usually represent more than 10% of the angel investor’s portfolio.
5. Venture capitalists usually just don’t give you the money and walk off. They often stick by your company’s side until it ‘exits’ by going public in an IPO or being ‘bought out’ by a private equity firm or large company.
6. Angel investing is risky, and an angel will only invest if he or she is comfortable with potentially losing all of his or her investment. So, the best way to find angel investors is through the use of LinkedIn to ascertain connections.
7. For most businesses, the first interaction takes place at the first stage of growth but venture capitalists can be involved in any of the first three early stages of a company which are – pre-seed, seed, and first-round.