Recent times have witnessed a surge in sources of private financing with deals poring in the laps of newly formed start-ups. The impetus it has given to the overall start-ups trajectory is sure making these new ventures go gaga on their new found patron.
Examples are flooded in the marked where these nascent yet brilliant ideas are been entrusted with millions of dollars like never before. Private funding of angel investors and venture capitalists in just over a period of last 4 years have consummated 450 plus deals with the overall funding of more then $1.5 billion during 2011 to 2015.The trend is promising so much so that every 6-8 hours there is an investment made in a start-up. one might wonder about different source of funding thru angle investors and venture
capitalists. Angle as the name suggests is a person who comes as a blessing when a new budding venture is cash-strapped and struggling to keep its head above the waters.
Although its more of a blessing in disguise because for everything their is a price .Same goes for the returns these investors expect. This is virtually an unsecured and highly risky preposition for an angle investor.Chances of their funds sinking and going unrecoverable are extremely high as they bank upon a volatile and somewhat instinctive venture. Therefore they expect returns which are manifolds as compared to a simple bank loan but then again how many new green horns venturists would be able to meet all stipulations set by a bank to successfully secure funds from them. The stakes can be high, returns expected can go upto 10-20 times over a span of 5-6 years as there may be some failed ventures or speculations which the capitalist need to recover from the profitable ones. such investors generally are well endowed with funds and are rich in experience and contacts.All this come handy to these new players who gain maximum benefits from their expertise the way these investors are placed in the business circuit.
Venture capitalists also work on same model but they rely more on managing someone else’s funds to put in similar venture. But all these investors look for is an extremely innovative and fresh idea which can revolutionize the domain they are about to enter.New aspirants from various technical background equipped with prestigious management degrees are no doubt are a cut above the rest and given preference and hold liking of such investors. However recently many innovators and enthusiasts who dream to make it big with their ideas and a penchant to change the market scenario are surely no less in gaining traction. The crux is something which can make a dent in the way things are done and revolutionize a change with their potential is bound to win favours. Its more like a match making bringing like minded entities thinking on similar frequency together buy pooling their resources to make things happen.During any such discussion leaving an impact rather than leaving ones card helps trigger the right chord however entrepreneur must also be cautious not jump guns into making ties with investors. They should look beyond mere funding and ponder if the bonding has potential of making it along term and multiple gains they could make from such association.
They should find some serious answers like what excites a VC beyond normal funding and other spin offs that they can expect out of the deal.Some facts worth looking at may be like how long has an investor been in the market and their earlier fundings. Also, whether both the entities think on same levels and if the interest is more than mere financial outcome, like they should share same passion and desire to leap in same directions. Its always viable to choose one who is really eager and wafting for a similar idea to fund rather than somebody who just wants to see a healthy balance sheet end of the term. Simple reason behind this is that the association is going to be long term and funds are required in phases.
Different type of funds may be required at different stages like at the onset during inception stage an entrepreneur may gather funds from his own savings and known sources like friends and relatives to fund the research and ascertain if the basics of a start-up are right. working on the feasibility of the idea is first step, Later while the actually putting the idea into function and starting with a full fledged activity is the right time to go for bigger VCs and investors where they have to be convinced about the prospects of growth, further up investors in this stage will be keen to know the team involved cos any such venture needs a pool of resources coming together to make it happen as its too tough for an individual to pull it alone.This requires larger funding. Its also tough to convince the viability along with the pros and cons of full fledged scale of functioning.
Further down the line another influx of funds may be needed again when in the course of business more mobilization is needed to foster advance plans like diversification and chalking out strategies to outsmart the market with new strategies and innovations and taking the production to surpass break even and reach the profitable scale. VC support is a must from end to end span. Finally it calls for a comprehensive valuation of business before the VC detaches itself from the business as planed with a healthy signout leaving the company ready to float separately and become self sustainable.