Ever wanted help while explaining the role of Angel investors and Venture Capitalists to mom ? Read this:
Angel Investors usually invest smaller sums of money ($100,00 to $500,000) and are more interested in working hands-on with innovators. Angel investors are open to high degree of risks, and their decision process is usually quick, with the diligence far less intrusive than that of larger VCs.
Angel investors' value-add, other than money, is their operating experience and hands-on work with founding teams. They also help introductions to larger investors at later stages. [Angel investors are sometimes known as Business Angels]
Early Stage VC Firms focus on taking a significant stake in a company early on, and they resemble angel investors in that they are interested in guiding the company from an early stage. The difference lies in their comprehensive diligence process and timing.
These firms usually invest between $500,000 and $2 million initially, and they have the capacity to invest more at later stages. They also provide invaluable guidance from their own experience and that of their other investments.
Growth-stage VC Firms usually invest larger sums of money primarily in companies that have validated their innovations in the market and are looking for capital to scale.
These firms invest anywhere from $1 million to more than $10 million, depending on the fledgling company's needs. Growth stage VCs add value in networking their portfolio companies together, to their joint benefit.
VCs vs Bank Financing - VCs get much higher return on investments when things go well, but they should an enormous financial risk that often exceeds that of the entrepreneurs seeking the investment.
Reprinted from How Innovators Connect by Rohit Agarwal and Patricia Brown.Previous excerpt: Time to market, Be a trend spotter