ANGEL FUNDING VS VENTURE CAPITAL FUNDING VS SEED FUNDING

Some are destined to be entrepreneurs. But to achieve this goal they would have to start their ownbusiness. But how? Will only a vision work? Will appropriate planning help in the start-up? What elsedo we need? Funding….

Funding is important for as it provides potential to contribute to the growth of a start-up. The basicresources, usually in the form of money are required to start a program or project. This fundingprocess is to take place in an organised and appropriate manner for easier to planning of financial tasksin an easy way.

There are wide different methods to seek funding for business. Let us explore three major fundingsources and also consider the pros and cons of each source:-

ANGEL FUNDING

Angel funding involves investment in early-stage businesses where investors supply funding inexchange of taking an Equity position in the company.

An Angel Investor iswilling to take morerisks and make biggerinvestment if theybelieve in the Start-up vision andpotential.
The funding receivedis not a loan amount,instead investorreceives ownershipconcern in start-up.Will reap financialrewards only ifbusiness does well.
Investors alreadyhave the competenceand understand theropes it will take tobring success in thebusiness. This helpsin substantial growth.

An Investor may sethigher expectationwhen they are ready toinvest more in thestart-up. The pressuremaybe intense if theythe rate of returnstandard set is higherthan originalinvestment.
Though officially notobligated to pay backyour investor thecapital they offer, youhave to hand equityover in your businessas a portion of the deal,and essentially aregiving away a portionof your future netearnings.
An angel investorwould not be ready tofund without taking aninterest in how thefunds are used. Youwill not have completecontrol in the business.

VENTURE CAPITAL FUNDING

Venture capital is a form of private equity financing investors provide to emergingstart-ups and small businesses that are believed to have long-term growth potential.It generally comes from well-off investors, investment banks and any other financialinstitutions and does not always take a monetary form; it can also be provided in theform of technical or managerial expertise.

A Venture capitalisttend to invest inbusinesses that arealready established toreduce their risk oflosing investments.This can help with avariety of businessdecisions, includingfinancial managementand human resourcemanagement.
There are a numberof analytical areas,including legal, taxand personnelmatters, a VC firmcan provide vitalsupport, which isimportant in thegrowth of a youngcompany.
Capitalists alreadywould haveconnections and areassociated wellenough with thebusiness community.This would provideenormous well-beingto start-ups.

Compared to Angelinvestors, VCinvestors are moreaggressive in theprofessional level.There is huge loss ofcontrol in shapingyour start-up’sadministration.
VC are ready toinvest only if thebusiness seems to beprofitable. Initialstage of investingwith a VC is harderwithout promisingfigures
A VC firm’s stake inthe company is at amuch largerpercentage (around25%-35%) making youlose managementcontrol.

SEED FUNDING

Seed funding refers to the type of financing used in the formation of astart-up. Here, ‘Seed’ refers to the start-up business at its initial stage.Much of the seed capital a business would raise may come from sourcesclose to its promoters including family, friends, and other associates.

The investors are ready to take the high risk of failure involved in the startup business.
Usually, No-Debt Financing is given by the budding entrepreneur and avoids overburden.
Usually, No-Debt Financing is given by the budding entrepreneur and avoids overburden.
Many of the investors (except in case of loans and borrowings) are interested in the ownership of the new venture rather than charging interest or monthly fees (for example Salary)
Investors are interested in building Relationship, Networks and Communities to the budding entrepreneur.

Acquisition of funds for business is a time consuming, and tedious work with diverts the entrepreneur’s attention from the underlying business operations towards fulfilling seed capital requirement.
The budding promoter may land up giving away a share of business ownership in the form of equity and limiting the future profits for himself or herself.
Some may falsely consider the acquisition of funds as their most significant achievement. Thus, goes into a relaxation mode when they need to perform in making their business a success.
In the practice of creating a diversified portfolio, the investors sometimes put their money in less-known businesses, thus increasing the risk of loss.
The investors purposefully pool in their money in a new start-up only for the aim at making profits. But, when the business reaches a break-even point, they tend to withdraw their investments.

Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”

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