Take off with the right fund provider

Vivek Bindra

For any individual who wants to tread into the world of entrepreneurship, the backbone of a start-up should be strong enough to cope with the market challenges and opportunities. Capital (money) is the blood of all business activities to run it in an efficient manner. Every business usually passes through a process of framework called product life cycle which generally refers four stages — Early stage, growth, maturity and decline stage. According to the phases of business, requirements of funds vary in order to assert their sustainability in the market. 

How to choose between Venture Capital and Private Equity?

In funding domain private equity and venture capital have become the pillars of modern investment. Here are a few pointers that make both the funding firms vary from one another so that an entrepreneur can look for the right fund provider:

1. Stage of business: The major difference between both the terms is that venture capitalists provide seed capital to the firms that are in earlier stage of their business. On the other hand private equity firms focus on the firms that require funds with the motive of their business expansion.

2. Types of sectors: The investment of venture capitalists is limited to a few sectors only. On the other side private equity shareholders may go across the portfolio sectors in terms of funding whether it may be manufacturing, FMCG, IT, Retail or any other sector.

3. Investment deal range: The investment of Venture capitalist funds may vary from minimum $1 million to 5 million whereas private equity holders start providing funding with higher investment with minimum $100 million and above. 

4. Growth perspective: Venture capitalists are more centric to higher market share rather focusing on business profitability. Private equity firms seeks investment in those firms who have a good profit margin with higher business stability. 

5. Time span: VC firms invest in a firm for short span of period but private equity firms tend to invest with higher money with higher extensive period of association.

6. Risk-bearing capacity: Venture capitalists have a high risk-bearing capacity due to their short-term investments in diversified portfolios. They generally invest in fast growing firms. However, private equity financing firms has a low risk bearing capacity thus they consider stable and well established firms who requires business expansion and diversification financing.

7. Stake holdings: Venture capital firms carry only minority stakes and their ownership is limited to their ratio of investment only. Whereas private equity firms acquire majority of stakes of business firms,  which further give them rights in intervening in their business activities.

However, the objective of both types of funding resources is to enhance the investment value and both have a strong networking with similar people. But both terms are different in the nature of involvement with the firms. Thus, as a start-up one just has to make a proper selection for raising funds from the market by analysing the business potential with your requirement.

Investors to explore

Here are the types of investors who can be taken into consideration in different walks of business levels for raising capital:

Friends and Family: By tapping into the inner circle of your social interactions like family, friends, colleagues or others, funds can be raised to initiate a business. 

Angel Investors: These investors are affluent people who tends to fulfill the financial demands of early birds firms with minimum returns. 

Venture Capital: Startup companies have a good potential for business development and they need certain amount of funds. Here venture capitalist firms help those business organizations who have clarification in their business ideas and strategies for growth perspectivesin boosting their business to the next level.

Private Equity: Private equity firms show their willingness in investing the already established or stable business organizationsthat are lacking finances to streamline their business operations.

— The writer is international motivational speaker, business coach & leadership trainer