A “Venture Capital” or “Business Angels” investor is not detached from commercials of any bank, nor has wings or magic wands. He is a legal or physical person (rare cases) that secures the starting capital of a business, against a higher or lower percentage of profit, after recovering his investment. With small differences in perception and legislation, this practice is common to both the United States and the European Union.
The term “angel” comes from the early 20th century when wealthy business people have invested in fast and generous business. In Europe, the commonly used term is “business angel”, an investor who invests capital in companies that are launching a new business or providing growth capital to an existing business. In most cases, investors use equity, but there are also networks or groups of investors that can together secure a higher level of funding. Over a certain level of funding, they are organized as venture capitalists more precisely named Venture Capital investors.
Benefits of getting the capital from an investor
The vast majority of lending institutions (banks in general) after the big 2008 crisis that began in the United States through the bankruptcy of Lehman Brothers maintains a rather hesitant and reserved attitude, making it very difficult for an entrepreneur interested in financing an idea new business to meet the criteria for guaranteeing and documenting a business credit. Even if the idea of a business is “brilliant” to the superlative, a bank will assess the apartment, car and monthly income of the “genius” claimant. An “angel” investor will only consider the quality of the business plan and the robustness of the business, and will evaluate return on investment (ROI) or SEC (secure of investment). Many investors are in fact retired or retired executives and managers with a tremendous business experience with their own funds and good expertise in some economic areas. An investor not only brings good business capital or auditing, but also brings valuable know-how, knowledge and skills to the business. They can also bring a number of useful contacts to enable the entrepreneur to develop a network of suppliers or customers or people who also have these abilities.
Costs associated with an investor
An investment in a new company is in 99.99% of the cases a venture investment. Consequently, an investor expects a high return on investment (ROI) as a compensation for losses from other investments. Thus, the percentages required by an investor are high and are required as a form of balance against the risk of losing money in the investment made. Quite often, an investment program is associated with an exit strategy, if the business does not work as planned. In practice, an investment requires 20-30% of the profit over a limited period of time negotiated between the investor and the contractor and mentioned in the financing contract. These percentages may vary drastically and depend on the business risk conditions associated with the business.
Investor Networks (Groups)
Since the late 1980s, groups of investors have emerged. As a rule, a group of 20 members or more, each of whom is interested in using their own funds for joint investment. In 2019, there were 225,000 investors in the United States. In the same year, 245,000 companies benefited from investments made by private investors. Most investments were made in high technology, energy, biotechnology and software companies.
The relationship between an investor and an entrepreneur
It is vital for things to go well and for the business to be a real success, and for a healthy relationship between the parties, based on the same principles and ideals. A company and an investor need to feel comfortable with each other in order to maintain good communication at times when making decisions that can ensure the success of the business.
Post from InvestMarket