What is a venture capitalist? Difference between venture capitalist and angel investor

BlogAugust 27, 2021

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Currently, there are more and more investment funds in the financial market, such as venture capital funds, ETFs, open-ended funds, closed-end funds, etc. When investing in these funds, most investors Investors want to make a profit for themselves. This is also the main purpose of participating in the financial market. However, each person has different profit goals and risk tolerance. Investors who want good growth potential will often have to accept the high risk associated with it, and vice versa. In this article, we will introduce you to some basic information about venture capitalists.

1. Venture capitalist

Venture capitalists are investors who contribute capital to companies with high growth potential in exchange for shares, usually startups or small companies that want to expand but do not participate. Enter the stock market.

Investing in these companies is often risky and has a higher rate of failure and uncertainty about their return. Still, in return, they can make a large return on their investment if the investors This company is successful.

Contrary to the common misconception, “venture investors” usually do not fund startups as soon as they start. Instead, they target companies at a stage where they are looking to commercialize their ideas.

Venture capitalists will be looking for a good management team, a large potential market, and a unique product or service with a strong competitive advantage. They also look for opportunities in industries with which they are familiar and the opportunity to own a large part of the company to influence its direction.

Venture capitalists often invest for the long term in businesses. They will stick with a fledgling business for many years until it matures to the point where its equity shares are valued, and the company is listed on the stock exchange. At that time, venture capitalists will withdraw capital and make a profit.

Famous, successful venture capitalists include Jim Breyer, Peter Fenton, Peter Theil, Jeremy Levine, and Chris Sacca.

In addition to choosing directly to research potential companies, venture capitalists also have another approach to managing venture capital funds.

2. Difference between a venture capitalist and angel investor

Both angel investors and venture capitalists have in common the supply of capital for entrepreneurs or small businesses. But they have the following differences:

  • Angel investors are usually wealthy people who invest their money in a budding company with high growth potential in exchange for an ownership stake. On the other hand, Venture Capitalist refers to a person or a company created to provide capital by pooling investment funds from several sources to invest in new and emerging companies and entrepreneurs to help them develop and expand the market, making good profits for investors.
  • Angel investors are exceptional net worth individuals who are successful entrepreneurs who invest their own excess money in potential new growth businesses. In contrast, venture capitalists pool money from various sources such as insurance companies and corporations to similarly invest in rapidly growing businesses and seek financial support.
  • Angel investors invest in a business in their initial stage, i.e. pre-revenue stage. In contrast, venture capitalists invest in a business that gets through its initial stage, i.e. pre-profitable stage.
  • The amount invested by angel investors in businesses is relatively less than the amount invested by venture capitalists.
  • When it comes to screening, angel investors perform the screening procedure according to their knowledge and experience. On the other hand, screening in the case of venture capitalists is carried out by a group of experts or by an outside company, which specializes in the subject matter.

3. Venture capital fund

Venture capital funds are investment funds that manage the money of investors seeking private equity in Startups or SMEs with strong growth potential and a large risk profile. /highly profitable, based on company size, assets, and product development stage.

Previously, only professional investors could participate in venture capital funds. However, nowadays, this investment usually comes from wealthy investors, investment banks, or any other financial institution that can participate. It exists not only in monetary form but also in many forms, such as technical or managerial expertise.

Advantages

Today, venture capital is becoming popular and essential in the financial market, especially for small and medium enterprises startups. When they cannot access the capital market, borrow from a bank or any other debt instrument, this investment fund is the only source of capital that they can exploit. In other words, Venture Capital Fund is indispensable for startups to develop and expand their business.

Defect

As the name implies, this is generally considered a high-risk investment that exceeds bank loans or capital markets standards. Since these are brand new companies, if they fail, they will lose a lot of money. However, if they are profitable enough to be listed on the stock market or sell shares, they will also lead to a high return on investment. Therefore, investors should rely on their own experience before participating in this investment fund.

In addition, Venture Capital investors will receive equity in the company they invest in, so they have significant authority in executing company decisions. This sometimes causes apprehension for Startup companies when calling for investment.

In summary, venture capital funds can be considered hazardous for investors who want to profit from regular investments due to their large capital requirement and investment experience. Therefore, when approaching to become a venture capitalist, you need to do thorough research. Always remember that all types of investments carry a high level of risk.

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