What is the difference between venture capital and private equity？

Private equity firms and venture capital firms have similar business content, both making budget-conscious investments in private companies in order to increase their value and profitability, and in the hope of achieving substantial returns.。Both achieve this by raising funds from financially qualified individuals and institutions。The two are related, but not the same.。Here are three key differences between the two in terms of business operations and overall motivation:

Age and size of investees: Private equity firms tend to invest in established companies that have been in business for a long time。For example, in 2014, a leading private equity firm called Bain Capital invested in the famous American shoemaker TOMS Shoes Inc..Venture capital firms, on the other hand, focus on providing fresh start-ups and start-ups with the capital they need to get started.。

Investment size: Private equity firms spend hundreds of millions or even billions of dollars on investing in companies; venture capital firms invest relatively small and more incrementally。For example, a venture's early-stage investment in a startup might not exceed $10 million.。As the company grows and the business expands, venture capitalists may invest more and more。

Risk and uncertainty: Private equity firms are relatively safe because they invest in companies with long histories, track records to evaluate, and sufficient performance data to analyze;。When an idea is just a business plan, not an actual business in operation, they have to sniff out the long-term potential of the idea。

Who is an angel investor?？

If private equity is for teenagers and adult companies, and venture capital is for young children, then angel investing is for newborns.。

Angel investors are well-funded and they step in at the earliest stages of a business idea's life cycle to support its transformation into a real business.。In other words, angel investors are committed to supporting the long-term vision of an embryonic company with little or no capital.。

How angel investing differs from venture capital？

Angel investing is a branch of venture capital that usually involves a lower amount of investment than venture capital。Angel investors are actually sowing seeds for businesses they want to blossom and bear fruit, which is where the name of the seed money they provide comes from。

However, angel investing is the investment of a single individual。Therefore, it is particularly important for entrepreneurs who raise funds through angel investors to distinguish between investors who are professional and proficient in due diligence and product analysis processes and those with less expertise or experience。

Angel investors and venture capitalists may also have different expectations of the businesses they invest in.。As mentioned above, venture capitalists value the company's equity and therefore have a say in the company's decisions, and they may or may not receive guidance, while angel investors are likely to provide guidance and advice to the companies they invest in to ensure their continued success.。

What are the different stages of venture capital?？

Start-up phase: This phase, where the investment is focused on a newly formed company or start-up that is just starting up。Startup founders may have made personal investments in developing ideas or venture capital, and there is plenty of room to accumulate client and revenue experience。As a result, startups are seeking both funding and advice and guidance on navigating the industry and market。At this point, angel investors are likely to step in。

Angel investors can make the necessary investments (usually less than $1 million) to support the company's philosophy。Keep in mind that angel investors are more about making personal investments and they may be more willing to fund local and well-connected companies。

Seed or early stage: The startup enters the seed or early stage of financing after it has gained some understanding of its potential for success, and experience in cash flow and revenue may still be limited。But in general, startups are ready to get started。At this point, venture capital (or VC) funds can play an important role。

At this stage, organized groups of angel investors and venture capital funds dedicated to early-stage startups may invest (typically $5 million to $20 million) and guide the startup through a variety of challenges, both industry-specific and management-specific, such as building back-end systems or completing sales.。If you actively seek guidance, you can also get guidance on changing your mindset to achieve greater business success。It is worth noting that early-stage venture capital funds may consider the start-up's geographic location when deciding to invest。

Growth phase: When a company is ready to accept a growth phase investment, it is already on the high road。In other words, the company has established many aspects - business model, profitability, and a clear path to growth.。Growth-stage investments can help companies gain deeper access to newer, less-populated markets。

At this stage, potential investees are able to attract significant investment from venture capitalists across the country。

Late stage: Late stage investment occurs when a profitable company seeks financing to achieve a more strategic goal (such as expanding overseas or investing in sales and marketing) after the company has accumulated sufficient mileage to qualify for a late stage investment。The motivation is to overwhelm competitors and gain a significant advantage in the market.。

At this stage, venture capital firms with large amounts of capital may join forces to invest。

Where does the venture capital firm's money come from?？

Just like the venture companies they invest in, venture capital (or VC) companies have to raise funds that can be used for investment。Partners in venture capital firms raise money from institutional investors such as hedge funds, endowments, insurance companies and foundations.。In exchange for capital, venture capital firms are in a strong position between those who need it and those who can provide it。

However, the greater the power, the greater the responsibility。As a result, venture capital firms must make a profit from their investments so that their investees can succeed and, in turn, return the money to their limited partners。

How venture capital firms are built？

It is important to understand the structure of a venture capital (or VC) company so that it is clear who to seek funding from。The following is a typical structure of a venture capital firm, with job titles in hierarchical order。

Analyst: usually the most junior member of the investment team。Analysts often have at least 2 to 3 years of experience in banking, consulting or start-up companies.。They are not on site and are not the ones making the final decision, their job is to do due diligence and analysis on potential investment projects。

Assistant: The job of an assistant is more about dealing with people, listening to opinions and making assessments in the field。Their surveys can help companies narrow down potential investments。The assistant has the ability to help open the funding floodgates, send a green signal, and bring potential investment projects to the attention of the company's top management。

The person in charge: the person in charge is usually a senior and well-connected member of the investment team, whose responsibility is to identify potential entrepreneurs and introduce them to the company's senior leadership。They are not the masters of the deal, but have the ability to arrange the right meetings with the right people to facilitate the deal。
General partners: they are the decision-making members of the team。The words of the general partner (or GP) carry a lot of weight when the company decides which deals to close and which to abandon。GPs can make potential investment proposals and have their teams vote。

Limited partners: Venture capital firms are usually formed as limited partnerships, with the limited partners effectively being the owners and source of capital of the firm。

How to Become a Venture Capitalist？

If you have an outstanding resume, a master's degree in business administration and several years of experience working in consulting, investment banking or start-ups, you may meet some of the common requirements for becoming a venture capitalist (or VC) and entering the investment world。

Since venture capital firms typically focus on funding technological innovation, specialization and expertise in the technology sector can help you gain an advantage。Some of the skills essential to a venture capitalist's job include finding deals, due diligence, negotiating and financing.。In addition to strengthening strong technical skills, a focus on strengthening soft skills, such as building a strong social media presence on sites such as LinkedIn or Twitter, and actively taking on businesses to build networks within the entrepreneurial community, can be beneficial.。