Discuss the concept of venture capital funding and angel investment
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Answer:
Angel investment
An estimated £850m per annum is invested by angels annually in the UK, making them a really significant source of funding for the UK’s startups.
Put simply, an angel investor is someone who puts their own finance into the growth of a small business at an early stage, also potentially contributing their advice and business experience. They might be a wealthy, well-connected individual who’s taken a personal liking to your product, a group of angel investors who club together to fund startups, or even a friend or member of your family who’s decided to put some money in.
Angels make their own decision about the investment, and in return for providing personal equity they take shares in the business. The amount they invest is flexible – it could be a small amount to get you off the ground, or a larger amount. While they can provide insight and advice about your business, their job isn’t to build up your company.
Venture capital
Venture capital funding is a whole other level. For a start, rather than individual investors, winning venture capital usually involves a whole firm – investors, board members, and people whose job is to generally help your business develop. Venture capital firms are made of professional investors, and their money comes from a variety of sources – corporations and individuals, private and public pension funds, foundations.
Those who invest money in venture capital funds are called ‘limited partners’; those managing the fund and working with individual companies are called ‘general partners’, and these are the people who work with the startup to ensure that its developing.
The job of venture capital firms is to find businesses with high growth potential. The firm take shares and have a say in the future of the company and its running, and in exchange for their involvement venture capitalist firms expect a high return on investment. After a period of time, often years, the venture capitalists sell shares in the company back to the owners or through an initial public offering, hopefully making much more that what they put in.
Venture capital usually deals with very large amounts of money – rather than seed funding, it can be multi-million deals. And while more and more startups are winning venture capitalism investment, with the sums involved and the risk of investing in a startup, businesses a bit further down the line might be more likely to gain the trust and money of venture capitalists.
VENTURE CAPITAL is defined as a equity by which an investor supports an entrepreneur talent with finance and business skills to exploit market opportunities and thus obtain a longterm market profit.