Venture Capital for Dummies 2

Well, after my first write up on the said topic, here i am sharing some more information, bite sized and easy to understand.

My intent is to make this reading light and easy and not daunting for you.

I always wanted to get into VC for a long time, but never found a compilation / collection of information which gives people like me (first timers / dummies) an easy reference to fall back on. So here i am, putting all my learning together to make it easy for us dummies to get into VC.

In my previous writeup, i covered, the basics of VC, the stages of VC & touched upon how do VC’s make money.

So, What Is Angel Investing?

Angel investing involves putting your own money into a startup in exchange for equity or future equity in the business. Angel investors come from a wide range of backgrounds and often invest during a company’s early stages. They can act on their own, as part of an angel network, or through third-party entities such as syndicates and equity crowdfunding platforms.

Angels can invest in many ways, maybe as individual's, maybe as part of syndicates and maybe as part of family offices as well.

Infact Angel investing has become so easy now that there are crowdfunded platforms which allow you to invest as less as $100 /-

Common Angel Investing Terms:

• Startup: A private company in its early stages of development
• Founder: The creator or owner of a startup
• (HNI) High-net-worth individual: A person with liquid financial assets over $X million (definition of X varies — please check your local country regulations)
• Accredited investor: A person who meets certain income (above $200k/year) or net worth requirements ($1M in assets excluding primary residence) set forth by the U.S. Securities and Exchange Commission (SEC) which allow them to make investments not available to the general public
• Non-accredited investor: An investor who does not meet the requirements for accreditation as defined by the SEC
• Equity crowdfunding: Funding a startup or early-stage company through small amounts of money from a large number of non-accredited and accredited investors, typically via an online platform

More Investing terms later… These were just the basics.

Historically, angel investors have been HNI’s providing funds directly from their own wealth rather than from a venture fund or institution. Non-accredited investors were unable to participate much in the gone past.

Over time, angel investing has evolved to include third-parties like equity crowdfunding platforms/syndicates, opening up opportunities to many would-be investors who have capital to deploy but don’t qualify as accredited.

Angel Investing & Venture Capital…

The main difference between an angel investor and a venture capitalist is that angel investors use their own money to fund a startup.

Venture capital firms are institutions that invest someone else’s money, typically Limited Partners (LPs), which generally include institutional investors from pension funds, college endowments, trusts, family offices, etc.

Angel investors make their own decisions about where and how much to invest, while venture capitalists make decisions as a collective and often have stricter criteria for capital allocations.

Another notable difference between angel investors and venture capitalists is the timing of their investments. Typically, angel investors provide funds to very early-stage companies, often even before those companies are generating revenue. Venture capital firms usually invest a bit later on during a company’s Seed, Series A, Series B, or Series C round, though some VCs do participate in early-stage investing.

Can anyone be an angel investor?

Startup investing is no longer limited to accredited investors.

That said, there are some important factors to consider before investing in a startup. After all, such opportunities were limited to accredited investors for so long specifically because backing early-stage companies carries substantial risks.

Restrictions on angel investing have eased with recent changes in the law, but the illiquid nature of startup equity has not. Therefore it’s essential that angel investors understand the potential financial implications involved in investing.

To better manage risk, many individuals only dedicate a small portion of their portfolio to startup investments. Angel investors should also be comfortable with having their money tied up for a minimum of 5–7 years. Businesses need time to become profitable, and it might be a while before even the strongest startup is prepared to go public or secure an acquisition.

Well, in the next edition, i will include more information on

(1) requirements on becoming an angel, (2) Min amounts to invest , (3) Choosing startups to invest in & finally, how to get started.

A small attempt towards sharing the knowledge of my learnings.

Stay tuned for more small byte sized learning. Will keep adding more.

Do give me a clap and share ahead (i love being motivated).