Venture capital angel investor plays a major deciding role in the changing world of business. All businesses require investments to begin, persist and prevail in the market. Without proper financial backing and support, any business is bound to be shaky and unreliable and that is precisely where the venture capital angel investor comes in. There are several kinds of investment like small, permanent, short term, long term, etc, which the market requires and handles every day.
Venture Capital Angel Investor Networks and Aid
Before we move into the details of how various networks operate, let us get a clear idea of how the venture capital angel investor works in the market. Such an investor is generally an affluent person who finances the development of industry by providing cash and retains a share or part of the company as a bond or return for his investment. This return may also be in the form of convertible debt or equity ownership. Also commonly known as business angel, the venture capital angel investor is an informal investor who banks on the fact that his investment, also called venture capital, will bring him more returns. They are available throughout the world and are now one of the potent sources of business development. Taking the example of the United Kingdom, there are several well known venture capital angel investor’s in the form of private investors, investment networks and institutions that undertake this venture.
According to surveys by NESTA, UK alone have more than six thousand investors with average investment size of 42000 pounds per investment thus making it one of the best investment networks round the world. The venture capital angel investor is a great source of help for people willing to open a business. However, since a lot of companies face the risk of extension during the early years, the investors expect very high gains for seed funding.
Strategy Adopted by Venture Capital Angel Investor
Different venture capital angel investor companies apply different strategies for better gains. However investment is not provided to all people. Because so much money is engaged in the deals, not all companies qualify for the funding. Therefore only those companies that have least potential to provide 30-40 % of the initial investments over a 5-6-years period are held eligible and the rest discarded. Even if they do, the venture capital angel investor always arranges for an exit strategy or acquisition so as to protect his or her investments should the business fail. Also the total time frame for this funding is generally 10 years at the maximum and during the four main stages of the company’s development period, namely, idea generation, start up, ramp up and finally exit. Every venture capital angel investor has a specific area or domain. These people or institutions comprise retired entrepreneurs, experienced personnel in distinct fields. Hence they invest in the particular fields they know as investing such huge amounts of money generally requires keeping abreast of the recent developments in the trade. The venture capital angel investor not only acts as a chief source of funding, but also provides expert opinions of the running of the enterprise. Hence the venture capital angel investor or institutions often appoints a member to the managing committee to ensure smooth running and as a precaution against any loss due to immature and reckless decisions. This person may hold several types of positions, starting from “Associate” to a “Principal”, “Venture Partner” or “Entrepreneur in Residence”.
Another secured process that is followed by the venture capital angel investor is pooling. This is a foolproof method of reducing the chances of a loss in investment. Since there is a considerably high risk in funding a budding business or making a wrong selection, venture capital angel investor’s and venture capitalists come together and do pooled investments. In this process, a huge sum accumulated as venture capital fund by contribution from a limited number of investors and firms is engaged in different kinds of business so as to secure losses from one type. In return, carried interests are used by the venture capital angel investor as compensation for the investment, which accounts to about 80 percent of the total profit from a business unit.
Tips for Venture Capital Angel Investor
Venture capital angel investor always undertakes risks of heavy financial losses. Hence it always advisable for them to opt for pooled investments. Collaboration with a well-known financial and investment management firm can also be of huge help. Also, because these investments are not lodged in the stock exchange, it is a good idea for entrepreneurs to consult the agencies for serious funding and private agreements. Apart from this, there are several cases where a venture capital fund may end up before the guaranteed period. It is, therefore, advisable for venture capital angel investors to have additional coverage to ward off emergency situations and remain protected. This syndication of investments and finance has now gained global acceptance and makes up for the majority of investments throughout the world. Today, the venture capital angel investor is the most suitable answer for businesses that have huge financial needs, which cannot be satisfied through bank loans alone. Venture capital angel investors are the answer to the financial needs of any business.