Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.
Equities are referred to as private equity funds when investors invest directly in private companies. These equities are not listed on the exchanges and are regulated by industry-specific criteria. Generally, private equity investments have holding periods of a long time. Hence the investors attracted to private equities are generally retail investors or institutional investors who can afford to invest large sums of corpus for a longer period. This huge capital is later used by the company to fund expansions, buy new technologies, strengthen the company’s balance sheet, etc. These funds have investing term of 10 to 13 years and after the expiry, the fund is closed, and the fund is returned to the partners.
This type of private equity involves investment firms purchasing debt from a struggling company to help make it profitable.
Investors raise capital from limited partners and form an investment fund, also known as a private equity fund, which they then use to invest in other companies.