What is the difference between private equity, angel investors, and venture capitalists?

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I really need to create a better quality version of that but it serves it’s purpose.

Now, take it with a grain of salt… every form of capital can and does participate outside of their wheelhouse. The aspect of the question that matters is that you as a founder want to be spending your time wisely, engaging where capital is most likely suited to what you’re doing.

What’s the difference?
From where matters. We’re over simplifying, but think of two different groups of the providers of that which startups need. Then think of those two groups in a progression from ideation to exit.

Those groups look sort of like this:

Startup service providers

  • Mentors
  • Advisors
  • Freelance
  • Incubator
  • Consultant
  • Accelerator
  • Agency

Startup capital sources

  • Friends and family
  • Debt
  • Business investor
  • Angel investor
  • Crowdfunding
  • Venture capital
  • Private equity

Appreciate that not only is that progression NOT so black and white but consider how you may be struggling by missing the alignment of your needs with what those providers offer. Technically, when it comes to funding, we need more of a complicated matrix such as that one I whipped together; funding sources aresn’t really progressive, they overlap. Debt or advisors are certainly applicable too at later stages; but then again, something like an incubator is not.

Specific to your question, an Angel Investor (and notice that that’s different than a Business Investor) is practically philanthropic. They invest directly and with purpose and experience – they are an “Angel,” paying forward from what they’ve benefited – as such their expectations SHOULD differ from what you might call a business investors (someone who also wants to invest but really just does so as an investor seeking a financial ROI). Venture capital comes from Venture Capital Funds – entities in which General Partners RAISE money from others, manage those funds, and invest in your business through the fund. Private equity isn’t terribly different from Venture Capital save that it tends to be less public, in larger amounts, and later stage – you might think of Private equity as when and were your company is ready to be acquired or go public.

Think of those lists as hinting at when in your development those things become valid but that they can remain so for whatever period of time is appropriate. Angel investors, for example, should also be thought of as one of your seed stage service providers in that you should be drawing investment then from folks who know yourspace and can help in some way (be that as advisor, informal BD, etc.).

Yes, service providers blend with capital sources such that one begets the other.

Blended together, our resource list from start to exit looks something like this:

  • Mentors
  • Friends and family
  • Debt
  • Advisors
  • Business investor
  • Freelance
  • Incubator
  • Angel investor
  • Crowdfunding
  • Consultant
  • Accelerator
  • Venture Capital
  • Agency
  • Private Equity

When seeking funding, ask first how you’ve invested in your business and ask if your investments are consistent with the expectations and costs of the sources from which you’re seeking venture capital

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