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Angel capital is sometimes used to fill the gap between seed money and substantial venture capital (discussed below.) Angels are wealthy individuals who use their own funds to provide financial capital for a small business startup. Angels often have an investing agenda , such as the desire to contribute to the development of sustainability products, or to the advancement of women or minority-owned companies, or promotion of economic development in conflict or low income areas. Angel capital is often looked to for funding startups that are too small to attract a large investor. It can be in the form of a loan with a repayment plan or given in exchange for an interest in the fledgling company. Angels generally invest less than $250,000 , although there are super-angels who may invest up to $1 million . Venture Capital In a prior lesson, students followed HealnnHeels through its startup journey, learning a little about venture capital (“VC”.) (Recall that it is money provided by investors to startup firms and small businesses with long- term growth potential.) Venture capital is a very important source of funding for startups. Most venture capital comes from groups of wealthy investors who have formed a company to seek out and nurture promising entrepreneurs and products . In other words, their business is the business of developing a business! Venture capitalists know and understand the particular market that the product or service will fit into, and believe that there is long term growth potential . Venture capital is not a loan . It is a direct investment in a company . This is pure, unadulterated capitalism. A venture capitalist’s goal is profit and a lot of it! In exchange for providing financial capital (and assuming the risk of loss of that money), the venture capitalist takes an equity (shareholder) interest and some level of managerial control in the startup. This entitles them to receive a portion of the company’s profits if and when they are made. Some venture capital companies leave the management to the entrepreneur’s team; others are more hands on, particularly those who specialize in investing in a particular industry. They may provide managerial and technical expertise for the fledgling company, and guidance as its product moves through R&D, manufacturing, and marketing. Private Equity The terms venture capital and private equity are often used interchangeably, but they are not the same things. VC is more closely associated with funding startups. Private equity firms work with established companies with an operating history that are looking to raise capital to restructure, merge with or acquire another company to improve performance and growth . Both venture capitalist and private equity firms take on a great deal of financial risk in exchange for an equity interest in the company. Exit Strategies Whether an angel or a venture capitalist, an investor will have an exit strategy , which is an agreement between the investor and the startup detailing how and when the equity interest will convert to (back to) cash , so the investment can be recouped. There are any number of ways this can happen. If the company is SLIDE 13I SLIDE 13J PRODUCT PREVIEW
Lesson 13 | The Quest for Capital! 246
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