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What’s the difference? Understand Angel Investor Vs Venture Capitalist.

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It’s critical to understand what’s makes the two funding options stand outright for your business breaking point.  To make the best decision for your company’s financing, you’ll need to understand the subtle differences between angel investors and venture capitalists, as well as what each can provide.

Some firms start with investments from friends and family until they are ready to move on to other funding options. Some people turn to crowdsource or seek a small business loan. There are a variety of techniques to attract capital depending on the nature of a firm and its needs. Small enterprises and early-stage companies operate in an exciting economic environment that provides ambitious entrepreneurs with numerous opportunities.

Though it comes with the type of capital requirements a business has, more people are turning to angel investors and venture capitalists to secure funding for their businesses. It’s critical to understand the differences between angel investors and venture capitalists to make the best selection for your company moving forward.

What is an Angel Investor?

An angel investor provides a significant sum of their own money to a firm in its early stages. The angel investor receives equity or convertible debt in exchange for their investment.

Many, but not all, angel investors are accredited. The Securities Exchange Commission (SEC) requires accredited investors to meet one of two criteria:

  • Earned $200,000 each year for the last two years, with a strong possibility of earning the same amount in the near future. The necessary annual profits grow to $300,000 if the angel investor pays taxes jointly with their spouse.
  • Regardless of marital status or tax filing status, have a cumulative net worth of at least $1million.

Angel Investors’ Opportunities and Obstacles

  • Compared to banks or venture capitalists, Angel Investors take on more risk. Angel investors aren’t bound by the rules of banks or institutions, so they can invest their money any way they want. As a result, typical funders’ investment concerns may not be a worry for angel investors.
  • When compared to alternative funding choices, you take on less risk as an entrepreneur. Angel investors, in many situations, do not expect payback if your firm fails, making them a less risky way to expand your business.
  • Angel investors have a wealth of business experience. Many affluent persons to be considered angel investors made their money through their businesses. You can use their business experience to help you build a start-up.
  • Since the risk is high, the ask is for larger stakes in your start-up. Giving them a large share in your firm is the primary obstacle, which means you have less control over the management of the company.

What is a Venture Capitalist?

A venture capitalist is an individual or group that invests money into high-risk start-ups. Typically, the potential for the start-up to grow rapidly offsets the potential risk for failure, thus incentivizing venture capitalists to invest. After a set period, the venture capitalist may fully buy the company or, in the event of an initial public offering (IPO), a large number of its shares.

Venture Capitalists’ Opportunities and Obstacles

  • Venture capitalists provide substantial sums of money to entrepreneurs. Venture capitalists are known for making huge investments in businesses, so if you need a large sum of money to get started, venture capitalists maybe your best option.
  • For entrepreneurs, venture capitalists pose a low risk. Venture capitalists, unlike angel investors, often do not seek repayment if the venture fails.
  • Venture capitalists have a wealth of experience and connections. Venture capitalists, like angel investors, have a wealth of relevant experience. They also make use of a variety of relationships, including other investors, industry leaders, and beneficial third parties.
  • Entrepreneurs have less control over their company’s management. A controlling investment in your firm is frequently required by venture funders, thereby removing you from complete leadership.

7 Things that Differentiates Angel Investors from Venture Capitalist

  • An angel investor works independently, whereas a venture capitalist is employed by a corporation or firm.
  • Angel investors normally contribute between $25,000 and $100,000, though they may invest more or less depending on the circumstances. The average amount raised by angels in a group could be over $750,000. Venture capitalists, on the other hand, invest an average of $7 million in a company.
  • Angel investors primarily provide financial support, whereas venture capitalists look for a solid, competitive product or service, a capable management team, and broad market potential.
  • Angel investors specialize in early-stage start-ups and provide funding for late-stage technological development as well as early market launch. Venture capitalists, on the other hand, invest in both early-stage and established businesses, depending on the venture capital industry. A venture investor will be interested in investing in a start-up that has a lot of growth potential.
  • Over the years, due diligence has been a source of contention for angel investors. Many angels don’t labor at all, and because all of their money is theirs, they’re not compelled to. Because they bear the fiduciary obligation of their restricted partners, capitalists must conduct more due diligence.
  • Angel investors are distinguishable than venture capitalists, who are less diversified than Wall Street and primarily focused on Silicon Valley.
  • Your company is more likely to be controlled by VCs. Because VCs also sit on your company’s board of directors – something angel investors rarely do and should not do – this strengthens their potential to influence the start-up.

How To Pitch To An Angel Investor

Your start-up’s ideas or team may pique an angel investor’s attention more than its immediate profit potential.

Pitch an angel investor on why your team is a good bet, but don’t forget to include important business details like market size, product or service offers, competitors and their shortcomings, and, if appropriate, recent sales.

How To Pitch To A Venture Capitalist

Present your company’s answer to a prevalent consumer problem, as well as the number of customers who need that problem fixed, when pitching a venture capitalist. For your meeting, prepare a business plan and a pitch deck.

You’ll offer a four-year prediction of your company’s income and expenses during your pitch meeting. Your objective is to demonstrate to the venture capitalist that the long-term return on investment outweighs the short-term danger.

There are great investors out there that probably want to invest in you and your idea, you just have to find them.

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Creating a successful business plan

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A business plan will increase your chances of securing funds. A business plan tells what you plan to do and how you want to do. A good business plan not only secures funding for you, but also attracts employees and new clients. Companies that have a business plan often have higher growth rates.

Here’s why:

  • First, it’ll be hard for you to raise money from anyone without a business plan. Different types of investors, which we’ll discuss shortly, will need to see financial projections before they even consider giving you a dime.
  • This plan will also set you up for success.
  • Once you get into the daily grind of your business operations, you’ll always have your plan as a reference to remind you how to proceed.
  • You may forget some ideas a year or two down the road if you don’t have everything in writing.

Your business plan should have a clear description of your business.

  • Who are you?
  • What do you do?
  • Your basic business concept
  • Your business strategy and action plan to implement it
  • It should also include a market analysis.
  • This will discuss information and research about your competitors as well as your target market.
  • You’ll also want to outline the organizational structure of your company.
  • Have clearly defined roles for managers and other positions within your organization.

Arguably the most important part of a business plan is the financials.

  • Do your best to include financial projections for the next three to five years:
  • Make sure your projections are realistic.
  • You don’t need to turn a profit on your first day or even your first year.
  • Just try your best to accurately predict your finances.
  • This section of the business plan will help you secure funding from other sources on our list as well.
  • The key financial aspects that investors look at may include rates of return, cashing out options, IPO, chances of being acquired etc

Things to avoid in your business plan.

  • Avoid possible disclosure of confidential matters thinking that it makes you trustworthy. It could ruin your business
  • Avoid over-optimism, exaggerations or consciously including false information
  • Avoid too much detail and try to explain things in a simple language
  • Make sure that numbers add up, your data is genuine and verifiable
  • Despite the effort and thought that goes into a business plan, it isn’t perfect. There may be still a few things that you can improve or the external conditions may have changed after you created your business plan. Make room for such fluctuations and scenarios.

The Executive Summary

This is often the most crucial part of any business plan. It’s not just the summary of your total business plan; you can use it effectively to

  • Grab attention towards your best features and strong points
  • The executive summary is often the first thing that many busy investors start reading in a business plan. Please highlight the most exciting and important parts of your business or product in your summary
  • Mention milestones achieved, tie-ups and sales numbers if they can create an impact. You need not include not-so-good numbers and risk factors.
  • Include your plans and goals, briefly. Give some information about the most crucial benefit that your product or service provides to the customers and how you were able to create such a solution.

There is a lot to business plans than what I wrote here. Take the above as guidelines, not as a blueprint. It all depends on your business niche and your business goals. There are a lot of sample business plans available on the web, you can just take a look at them and start.

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All Topics Funding

Funding for start-ups

Hand holding a sack of money
Hand holding a sack of money and white brick background

We admire and encourage anyone who wants to create a company. However, it’s not easy. Don’t let money stop you from pursuing your dreams. If you want to start your own business but don’t have the funding, you can still get it off the ground in a number of ways.

In fact, only half of small businesses in the United States will survive through their fifth year of operation.

  • Furthermore, just 30% of those businesses make it through ten years.
  • Based on this information, it’s clear that failure is more frequent than success when it comes to startup companies.
  • So we commend you for wanting to pursue this path.
  • While running a startup may be difficult, it’s also extremely rewarding.
  • You’ll learn a lot along the way. There are plenty of things you wish that you knew before starting company.
  • But getting your startup off the ground is the first step.
  • Like with most aspects of business, you’ll need some money to do this.
  • If you’ve never been through this process before, it may seem intimidating.
  • Not sure where to start?
  • In fact, you can get money from multiple sources.
  • We’ve outlined different ways for you to get your startup funded below.
  • We’ll let you decide which ones are best for your startup company.

Create a detailed business plan:
Before you do anything else, you need to have a clear understanding of how you plan to operate your business.
A business plan will increase your chances of securing funds:
Companies that have a business plan also have higher growth rates.

Here are the main sources of your funding:

  1. Visit your local bank or an online company
  2. Seek help from friends and family
  3. Venture capitalists (VCs)
  4. Angel Investors
  5. Crowdfunding
  6. Dip into your personal savings
  7. Look for a strategic partner
  8. Try to minimize initial business costs

Conclusion

  • Starting a new business is exciting. But it’s not cheap.
  • Not everyone has enough money to get their startup company off the ground.
  • If you can’t fund your business on your own, try getting a loan or line of credit from your local bank.
  • You could always ask your friends and family for help.
  • Venture capitalists, angel investors, strategic partners, and crowdfunding platforms are also great options to consider.
  • It’s important that you always start with a strong business plan.
  • Come up with realistic financial projections.
  • This will make it easier for you to get money from investors.
  • You also need to keep all your costs as low as possible to make your funds last until you can get a steady income stream.

Follow these tips, and you’ll be on the right path toward raising money for your company.
Good luck!

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All Topics Funding

Can you secure funds from your bank for your startup?

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Businessman refuses to give a money bag. Refusal to grant loan mortgage, bad credit history. Refuses to cooperate. Economic sanctions, confiscation funds, deductions and fines. Financial difficulties

The answer is both ‘yes’ and ‘no’ depending on your business type, business model and bank’s policies.

The major points you need to understand about banks, when it comes to small businesses, are:

  • Banks are responsible for other people’s money and have several policies in place, so they avoid risk as much as possible.
  • Banks often have lengthy and stringent rules when dealing with customers
  • Banks mostly offer only loans; they rarely participate in equity or other types of financing
  • Banks look at assets and balance sheets, they don’t normally offer loans based on ideas or business plans
  • Banks try to earn a predictable and long-term income on their operations

So, by now you probably guessed if banks are the right destination for your project’s financing. If you are a more traditional business house with a long history of business success and acquired some assets and have a stable balance sheets, banks are for you.

If your business exists only in your mind and on paper, you can safely forget about banks.

There is a chance that your bank is startup friendly and is participating in some sort of funding programs as part of some economic drive, but they are more likely to entertain a brick and mortar business that is likely to acquire a few physical assets, rather than backing a company involved in creation of a digital product or service. And you get only a loan, not equity. Check it out with your bank’s representative about the financing options that they have for your kind of business.

Sometimes, if a small personal loan is enough for you to get started with your startup, then you can consider it if the interest is not too high. As investors, banks enter only after your business has shown some traction and stability. But there is some chance that you may still get financed by a bank based on your industry and your product. It is always better if you check with your bank first.

Follow these simple steps; it only takes a day or two to find out if your bank has something to offer you. It’s a lot better than chasing angel investors or VCs.

  • Go to the banks you use for your personal banking needs or explore an online company.
  • I recommend starting with your local bank (if you use one) because you already have a relationship with those companies.
  • Set up an appointment with a loan officer.
  • Show up to your meeting prepared.
  • Dress professionally. Bring your business plan.
  • Explain to the loan officer how much money you need and what it will be used for.
  • Depending on your situation, you may qualify for loans for certain aspects of your business, such as equipment.
  • If the bank denies your small business loan application, you could also try to get a personal line of credit from that institution, or from an online company.
  • You can use that line of credit to fund your initial business expenses.
  • Don’t quit after your first appointment.
  • You could try other banks and financial institutions if your first stop is unsuccessful.

Don’t get disappointed if you didn’t find any help from banks. Banks are more oriented towards consumers and assets, and definitely not the best places to look for financing your startup. Also, banks don’t understand newer technologies or business models. So, don’t really worry about the outcome with banks, there are several other options for financing your startup.

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All Topics Outsourcing

Outsourcing – risks and obstacles – 2

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Programmer Outsource Developer Team coding technologies Website design. Mobile Application Software, Cyber space concept.

In the previous article, we discussed trust, quality and cost. In this part, we will dive into more serious risks that can affect your outsourcing strategy.

Finding the right people to outsource:  While doing a comparative study of providers from various regions and outsourcing platforms, may give you a fairly good idea of the market and its price mechanisms… there is no guarantee that you will end up recruiting the right outsourcing agency or freelancer. Choosing from a lot of options and weighing different criteria is still a difficult task. You may seek advice from your fellow entrepreneurs or your account manager at the outsourcing platform. Here are a few tips

  • Narrow down the skill sets and experience to your exact requirements
  • Check if the freelancer is available as per your schedule
  • Check the project completion rate, feedback and reviews. Many freelancers are in the habit of leaving small projects in the middle in favour of a big project.
  • Check if the agency or freelancer is resorting under-pricing or over-pricing
  • Is the freelancer trying to sell other services to you?

Control :   You can control things at your end, but controlling the other end is not possible most of the time. If your company relies on proprietary technologies and intellectual property, you better not to outsource your precious development work or data. This is really important if your product is purely a digital one. The best thing you can do is to divide the task into several sub-tasks and get them done by different agencies. But this requires some extra managerial and technical skills from your part. Or you can try to forge a partnership with your technology developer. In most cases, this is not such a big issue and is easily manageable.

Communication: It is the most important part of any successful project. Not only the project details need to be thoroughly understood by both parties, but also the required prototypes are developed in order to avoid failures. If both parties speak the same language and have the same understanding about the requirements, it is an ideal situation. But it is not always possible. The idea behind outsourcing is to obtain the best possible service at the lowest possible price, so you will have to work with agencies from different regions. In such cases, it is always a good idea to engage with a translator while dealing with agencies speaking other languages and establish a common terminology to make sure that nothing is lost in the translation. Similarly, for culture related issues, you can give some good examples of your culture and seek similar information from the other end. This is particularly important to know about working hours and holidays that the freelancer or agency observes.

If all this seems a bit intimidating to you, seek help from your fellow entrepreneurs or forums. These are not any regular issues that happen with every entrepreneur. These are only occasional problems that surface when you didn’t put enough thought. You just need to be aware of these risks and have a plan in place to deal if such situations arise.

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All Topics Outsourcing

Outsourcing – risks and obstacles – 1

Customer services
Customer services answer call

Outsourcing, by nature is a low-risk and high reward transaction, only if you planned it after a careful thought and investigation. It’s a low risk one because you can always test with a small order and seek samples before you outsource to a vendor. If you are using well known outsourcing and product sourcing platforms, you can look at reviews and ratings before you can recruit your partner. Companies have varying experiences from their outsourcing endeavours, ranging from dreary disappointments to outstanding success. You may be inclined to believe what you wanted to hear, but here are the few factors that you can use to refine your decision to outsource or not

Trust: Like any other business transaction or relation, trust is a major factor when you want to outsource. The outsourcing agency may be highly competent, but if you cannot create an environment of trust and mutual respect, you may not be going too far with your partner. This applies to your agency partner as well, if they couldn’t win your trust, you better look at alternatives. Trust is beyond signed agreements, because you and your outsourcing agency are operating from different geographical areas under different regulatory authorities. It’s very important to talk to your partners and find out if they are what you are really needed. If yes, try to understand them better and find out how you can create a good relationship with them.

Quality:  Quality is often the most discussed part in the outsourcing business, because this is something that comes into picture only after you have commissioned a project got some output. Many times, quality is hard to define. It could be because you have an idea, but don’t have the vocabulary to describe your idea. You feel it, but you can’t define it. Even if you define, it is possible that you are unable to convey it to the other party, or it is lost in the translation. This is where you need to list out similar products and write down your ideas to the last detail. It is your responsibility that the developer at the other end is able to understand what you are trying to say. Some outsourcing projects fail simply because everybody seems to have understood what they need to do as per their last conversation, but no one cared to put down their thoughts and imagery on to a paper and shared it to the other party to confirm if it is what they really meant!

The downside of it is that quality is expensive in most cases. You can’t expect top quality output at the meagre prices you are willing to pay, even with outsourcing. So, you have to find a reasonable trade-off between what you pay and the quality you are expecting

Cost:  Cost is the obvious reason why many choose outsourcing.  The direct cost benefits produce the real value only if the desired business goals are achieved. If projects ran for a long-time or the desired output is not produced, your outsourcing is not generating you the value. There are a lot of factors you can take into consideration. Do a comparative study of service providers from different regions. Look at their price variations and guess what the defining factors for their pricing are. Mostly it’s the experience, expertise, success rate, in-demand skills and communication skills that determine the price of a service. The origin of service is also a huge factor, because freelancers from some countries come at a cheap price because of their living standards. You have to compare the skills of freelancers from different regions and see the variations in their hourly wages to choose the right talent at the desired price.

In the next part, we will discuss about some more risks…