What differences exist between Venture Capital Companies and Business Angels?

Start » Financing » What differences exist between Venture Capital Companies and Business Angels?

Many of the consolidated companies today and admired for their success and growth, such as Microsoft, Skype, Movistar or Tom Tom, received the venture capital support. Without that support, the success of their brands would not be what they enjoy today. In this article we are going to explain to you What are Venture Capital Companies (SCR), and name some differences with another widely used financial resource: Business Angels. 

What do we understand by Venture Capital Company?

The Venture Capital Companies They are public limited companies whose main objective is to provide financing, as well as advice, especially to SMEs and StartUps which can be found either in an initial phase of business or more advanced. 

This investment is often called risk capital, since companies that request this investment and participation of investors in certain business decisions and/or advice may have exhausted the possibilities of bank financing. 

The SCR in Spain still different valuation methods recommended by the Venture Capital Company Valuation Guide. Some of them may be:

  • Recent Investment Price Method
  • Multiples Method
  • Method of Discounting Cash Flows or Profits of the Underlying Business
  • Etc.

However, according to various studies on the SCR company valuation method, it has been found that They prefer to risk less and choose those business ideas in a more advanced state consolidation rather than new projects. 

Likewise, the experience of the company receiving the investment is not as important as the project profitability. After these factors, others are taken into account, such as the sector of activity to which the company belongs or the growth phase in which it is located.

A review of Business Angels

In our article What is a Business Angel? we went into detail about the vadvantages of this type of financing for the companies. Reviewing this resource, we can summarize that:

  • Business Angels are people with passion in business, experience and enough financing capacity to make an investment in a project. 
  • They participate in decisions and present themselves as a model to follow thanks to success in his previous businesses. 

Apparently, these two resources financials are presented with the same functions and objectives before a company that needs both economic and strategic support for its decisions. 

Between his similarities we find the generation of Job positions, consolidation and Business Growth, he little knowledge that there are of these resources in Spain and the almost zero use by national SMEs. And as the main similarity, they greatly reduce the business failure rate. 

Even taking these similarities into account, differences can be found. In the next section we explain them to you.

 

Differences between SCRs and Business Angels

We can see the differences classify according to their nature:

  1. Financing agent: While in Business Angels these are investors who may even be friends or family of the entrepreneurs, in SCRs they are anonymous. 
  2. Financing capacity: Generally, business angels have less investment capacity than SCRs, so they contribute greater capital to the project they wish to support. 
  3. Company/project phase: Normally Business Angels are dedicated to financing companies in their initial phases, and in the case of SCRs they opt for more advanced projects. 
  4. Risk: We already commented in previous sections that the assumed risk of SCRs was generally low. The opposite happens with Business Angels, they assume higher risks when investing in more initial phases of a project. 

These differences are what must take into account the companies that looking for alternative financing to that offered by the bank. Either because they do not meet all the required requirements or because they also need strategic advice. 

Conclusions

The SMEs They are the business fabric of our country. They are in charge of economic motor that makes us work, and to whom we must provide facilities to be able to develop their idea. 

If you have a project or company and you need financing to develop the idea and expand, consult with experts about alternative financing which you can opt for would be the best solution. There are many resources like the ones we compare in this article, and each of them adapts better or worse to the needs of a company.

Leave a Comment

en_GBEnglish