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The Importance of Venture Capital for Start-up Businesses

Posted on Friday, February 11th, 2011 at 12:18 am.

Venture Capital is a finance that is furnished to start-up companies that have high potential growth but are too small to raise capital and are not yet capable of obtaining a bank loan. The ventured capital fund which is also called as seed capital makes money in exchange for an equity stake of the company it invests in. They usually get considerable control over company’s decisions, apart from owning a significant portion of the company.

These financial resources are vital for entrepreneurs who have projects such as product innovation or research development that needs potential investors. Financial institutions like banks offer loans to entrepreneurs however, they demand the payment of interest on the invested capital. Angel Investors on the other hand, are mostly opulent retired individuals who are willing to venture capital in early-stage businesses or expanding enterprises, in exchange for stocks and bonds of the company. These enable them to stay abreast with the development of the business sector even while enjoying their retirement.

Naturally, these entrepreneurs need significant support to get their ideas off the ground. It is imperative to have a healthy system of connections of lawyers, accountants, and other business professionals who understand the challenges of start-up companies in establishing a feasible Angel Investor Network, with specialized services that include intellectual property protection, auditing, workforce development, and Initial Public Offering (IPO) registration. At an early stage of the business development, an experienced Angel Investor can contribute knowledge and skills to an entrepreneur on how to run the business. They may also be good sources of useful contacts allowing entrepreneurs the opportunity to network with others in their industry.

The Difference between Angel Investors and Venture Capitalists

Posted on Monday, February 7th, 2011 at 10:28 pm.

I have been doing some optimization jobs for entrepreneurs and investors’ website, but I do not have a full knowledge on what the business is really all about. All I know is that, this is about business investment, yet, I still can not figure out how it goes, and how it works. Until I made a little research, I completely understood on what type of business this website is offering.

I admit this is the first time I have encountered the words Angel Investor and Venture Capital. From my own point of view, without having knowledge yet of what an Angel Investor means, I thought it is an individual who seems like an angel lending his money to those who need capital for investment. And perhaps some necessary procedures must be followed and legal documents must be secured for this is a financial matter that is always a very sensitive case in regards to business.

According to Wikipedia, an Angel Investor is also known as business angel or informal investor, an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. The term Angel originally comes from Broadway that was used to describe wealthy individuals who provided money for theatrical productions. http://en.wikipedia.org/wiki/Angel_investor

My own perception was not quite far from what Wikipedia has explained. So, Angel Investors typically invest their own fund. These opulent individuals organize themselves to share research and merge their own investment capital. Most of these investors are retired entrepreneurs or executives, who may be interested in angel investing for some reasons that go beyond monetary return, such as being acquainted with the latest developments in the business sector, and mentoring another generation of entrepreneurs by making use of their experience and networks on a less than full-time basis.

According to a Harvard report (by William R. Kerr, Josh Lerner, and Antoinette Schoar), start-up companies funded by Angel Investors are less likely to fail than those companies who rely on other forms of initial financing.

Venture Capitalists on the other hand, contrive the merged money of others in a professionally-managed fund. It is a capital provided to early-stage, high potential, growth start-up companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc. http://en.wikipedia.org/wiki/Venture_capital

For new companies with limited operating history and are too small to raise capital in the public markets, Venture Capital is very much appealing. Basically, these small companies have not yet reached the point where they are able to obtain a bank loan or complete a debt offering. Investing in small and less mature companies is risky for Venture Capitalists and so they usually get considerable control over company’s decisions, apart from owning a significant portion of the company.

Big News at Y Combinator

Posted on Monday, February 7th, 2011 at 10:20 pm.

As I was reading the news I found an interesting article about the small business incubator Y Combinator. It appears that Russian venture capitalist Yuri Milner will be investing $6 million into this year’s class of 43 Y Combinator companies. Each company will receive an investment of $150,000 in seed financing. I’m wishing I would have applied for Y Combinator this year.