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Who are Private investors?

The investors take high amounts of risks while investing in startups but the potential for above-average returns overwhelms the apparent risks involved.

April 25, 2011 1:52 IST | India Infoline News Service

Private investors are individuals who provide startup firms and small businesses with money or venture capital to meet their startup costs. Private investors are a very important source of funding for startups that lack access to capital markets as they do not have sufficient operating history. The investors take high amounts of risks while investing in startups but the potential for above-average returns overwhelms the apparent risks involved.

Private investors can be classified under two broad categories:


Angel investor

An angel investor or informal investor is a wealthy individual who provides business capital for startups with the expectation of seeing higher returns. They are more likely to take higher risks than venture capitalists not only to get higher returns but also because they are keen to see innovative businesses succeed.


Angel investors generally invest in a firm that is part of an industry they understand and are themselves possibly involved in. They look to invest in a business in the initial stages and money is not only how they make investments.


They also offer advice and support as well as some stake in the company along with some control over the business’s running. Some angel investors also pool in money to make bigger investments.


Venture Capitalist

A business house can look for a venture capitalist to secure more capital once it has overcome the initial hurdles and is running in a more organized manner. Venture capitalists usually tend to focus on different stages in the life of a business. While some like investing immediately after a firm has crossed the angel investor stage, others prefer waiting and invest only if a firm receives a first or even second round of venture capital investments. Venture capitalists are more motivated by profit than anything else and hence they tend to invest in businesses that offer security and a high return on their investments.



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