Funding Mechanisms For Businesses – Equity Funding, Angel and Equity Investors
Angel Investors and Equity Partners provide funding for companies with high potential. They differ in their expectations about cash flow and risk, the former preferring a steady flow and lower risk and the former expecting payment later with a high return. These investors have weak links with the founders, unlike families or friends, and can provide a much needed balance in the strategic direction of the firm or non-profit. They would not invest in a lifestyle business. Savvy entrepreneurs chose these types of investors to provide knowledge, experience and contacts.
Angel investors are individuals who want to take an active role helping a young company with high growth potential. They participate in strategic decisions by having a board position, and usually support sales, operations, relationships with suppliers and third parties, and other specific areas in the industry where the company is involved. They invest their own money and usually are former entrepreneurs who have been successful creating and selling a company and wish to support others do the same.
A successful entrepreneur who has received funding by an angle investor and enjoyed the process is very likely to become and angel investor.
Both Angel Investors and Venture Capital Funds actively support the company growth and diminish its commercial risk. They are looking benefits through the sale of shares in a relatively short term, less than 10 years. The sales of shares can be executed by the sale of the whole company, a merger with another company, shares bought back from other investors, including a founding member, or traded on the stock exchange. Payment of dividends is less important to Angels than the accumulation of share value.
Equity partners generally invest capital, have a wide range of involvement and share some risks. They do not expect the company to grow rapidly and tend to prefer a steady return in the form of dividends. Equity partners might also work part or full time for the company, and tend to be more involved in managerial tasks than strategic direction. They can provide legal or accounting services. This type of investor does not expect a clear exit option. They prefer stability over growth. They do not have a clear exit strategy.
Author: Alicia Castillo
Article Source: EzineArticles.com
Provided by: Bumper guardian
