What are angel investors? Angel investors also known as the informal investors are the affluent individuals seeking to make the investment in theRead More
Investment funding is the capital provided by the private and government organizations to the SMEs and start ups, for investment purposes. Investment funding is a risky decision as the investor may have to incur severe losses from failure of the project.
In today’s market angel investment funding and venture capital investment funding are two popular forms of investment funding.
Angel investment funding is provided by angel investors which are the affluent people either retired businessmen or those having a flourishing and profitable business. There are as many as 4000-6000 angel investors in UK which make on an average 42,000 pound funding for an investment in each project. Angel investors making investment funding have organized into angel networks and organizations. These angels usually maintain low profile, hence are difficult to locate. These angels make funding for an investment to earn high returns on investment. Funding for an investment earns many times higher returns than that obtained on investment in share market and real estate investment funding. Angel investment funding is a high risk investment as there are chances of bearing heavy loss in case of company goes in loss.
Angel investors provide angel investment funding to those small and medium enterprises and start ups that either have a track record of making huge profits or are promising in generating large returns. The capital provided in funding for an investment is the money owned by the angel investors, this is the reason why angel investors are very cautious in investment funding. Angel investors seek very high returns on funding for an investment, as high as 10-2 times returns on investment in initial 5-7 years of investment. Angel investors making investment funding not only provide the funds but also their contacts, knowledge, advice and experience to the company.
Angel investment funding is available in return of the convertible debts or the ownership equity in the company. Angel investors may ask for as high as 15-30% ownership in the company in lieu of the investment funding. Angel investors provide investment funding only when they are satisfied that the company they are planning to invest in is in the safe hands. The management team of the company must be sound, knowledgeable, influential, committed, and competent and determined so that the angel investors are assured of earning good returns on funding for an investment.
Angel investment funding is comparatively easily available for those projects which are of the personal interest to the angel investors. For example angel investors with the inclination towards technology are more likely to make funding for an investment in those projects which are related to the research and development in new technology.
Angel investors prefer to make investment funding in those projects which have impressive sales pitch and exit strategy. Angel investment funding is provided to those enterprises with the clear vision of their business with concrete planning, perseverance and determination to achieve company goals.
Venture capital investment funding is provided by venture capital investors who are the full time investors with the core intention of earning huge returns on the investment. Venture capital investment funding is available in lieu of the percentage ownership of the company as well as a non-executive post in the board of directors.
Venture capital investors do complete matrix analysis of the business before funding for an investment. They study the general trend in the market regarding the time taken to generate profits in certain business, revenue-expense ration in context to investment and time devoted and when the right time for funding for an investment in the business is i.e. The stage when the returns are still not generated, the stage when the returns are generated or the stage when profits are incurred by the business.
Venture capital investors track the past record of the business in making profits and go by their personal interest and gut feeling to opt for investment funding sector. Venture capital investors enquire about the track record of the enterprise, the profits incurred in the past few financial years, the total assets owned by the enterprise, the legal structure, background of the entrepreneurs, potential liabilities and verification of the ownership before deciding to provide investment funding to that enterprise.
Venture capital funding for an investment is provided in lieu of 3 types of venture capital shares for investment funding:
Ordinary shares which hold the same value as the owner of the company and the investor earns returns on the investment funding in the form of the dividends earned on the shares and the increase in the capital.
Preference shares which earn the returns to investor on investment funding irrespective of the returns incurred by the company in a particular financial year. The dividends are accumulative in nature and are delivered with arrear in lieu of the funding for an investment.
Debts in the form of loans, leasing, other borrowings which are secured against the fixed assets which can be sold by investor to get the returns on the funding for an investment.
Venture capital investors own the invested company for 3-5 years after which either they sell it to the acquiring company or issue the IPO to cash back their investment and earn the profits if any.
Government also makes investments to earn profits from various projects. For example recently the UK government has announced investment funding of 775 million pounds in NHS research. It is part of the 4 billion pound investment funding in research and development by the UK government. The government has asked for applications to receive investment funding, from the NHS/ University partnerships and the groups working towards the health improvement of the high priority patients like cancer, dementia and heart patients. The funding for an investment will be provided in the next 5 years to provide benefit to the NHS patients by providing funds for the new discoveries and new treatments for the serious diseases.
This investment funding by the government is aimed at making the NHS the world leader in healthcare system.