What are Capital businesses?
Small companies typically seek out capital businesses when they need financial support to take their business to the next level. Capital businesses provide money to companies or individuals for an exchange of repayment or equity.
Rather than taking out a loan, capital businesses invest since they see potential in a business.
This is not the case with loans since they are not make an investment off of the company. Today, we will look at two capital businesses to explain further what is the process of running one.
If you’re familiar with Shark Tank, then you have a pretty good idea of what a venture capitalist is.
Venture capitalists provide capital to businesses that wish to grow but do not have the funds to do so. They deem these businesses will become successful, and they sign to agree for an equity stake in exchange for money.
This is an investment for the venture capitalists as they do not know if the company will become as successful as they imagine. But if the company does become successful, part of the company will have to give profit to the venture capitalist.
Rather than just giving them funds and taking interest on it, venture capitalists can make much more money than just giving them loans. This is why they need to do extensive research and see if their business and revenue models are worth investing in.
An angel investor provides funds for startups or established businesses in exchange for equity or debt. They are typically needed when startups need quick funding.
The difference between angel investors and venture capitalists is that they use their net worth to fund them while venture capitalists use an investment fund. They invest with the idea that your business will grow profitable with the help of capital. Therefore, they are motivated to help you succeed and give you advice along the way.
The downside of angel investors is that they typically will ask to own a large percentage of the company, which can potentially allow them to take over your business.