Venture capital and start-up investment have traditionally been dominated by the big players. After all, they have usually had more resources to help them choose a good startup business than the others. Moreover, entrepreneurs have traditionally preferred wealthier investors because they get more capital. However, start-up investments are slowly but surely becoming accessible to the average investor. To understand what this means for entrepreneurs and investors, it is important to learn about startup investments first.
The terms venture capital investment, start-up investment, and angel investment are different in their own way, but they share the same common concept, which is that of investing in a new firm or a new product or service that is being launched by a firm. The money that is invested is used as capital by the company to carry out its plan.
If the investment is for a start-up, the money is generally used to begin product of a company until its revenue stream increases to the point where it can sustain its capital. Of course, the investors who provide the money to the company get something in return as well. This can either be a certain number of equity shares in the company or a certain percentage of equity ownership.
Why invest in start-ups and support entrepreneurs
Every year, several entrepreneurs think of new and promising ideas for a business, but fail to turn them into a reality. One obstacle that stops a great business idea from getting into the real world is capital, or the lack thereof. The large money lenders, including banks and financial institutions, are very cautious about funding any business idea, and so, a lot of promising ideas go to waste. However, startup investments or angel investments can help such promising and radical ideas to see the light of day.
Online investing is one of the most lucrative areas of high growth investment today, and for a reason. For those who are not aware, high growth investment is a relatively new type of investment strategy where you invest in companies that are expected to grow faster than others do for shares or ownership equity. This is often done on a crowdfunding platform such as Startme in South Africa where you have the opportunity to invest in a business or creative idea together with a host of other investors. Not only is this more affordable and the risk is shared among many of you, but its an exciting opportunity to see your money grow. This investment is used for financing the company.
Those who provide equity finances as an investment to high growth companies are called venture capitalists, while those who provide finances to a startup with high expectations of growth are called angel investors. Let us take a closer look at what these investors do.
The role of venture capital and angel investors