Which Option Should A Start-Up Choose? Angel, Venture or Strategic?
One simple way of answering this question is— whichever you can get! On a serious note, an investment option depends on many parameters like:
How much money do you want?
At what stage is your company in now?
What is your business model and industry?
What kind of return can the company give on the share value after five years?
What are the exit options?
Usually, a start-up doesn’t choose strategic investments, largely because:
It gets locked into the business model or industry in which the investor is engaged, because he has made the investment to benefit his core business and not for a financial return. This is not beneficial for a start-up which needs flexibility to evolve and change its model.
Quite often, the investor does not want to exit the investment or sell his shares, whereby the entrepreneur gets locked in almost forever. This also means that, if another company wants to buy his company, which could be in competition, the investor might not want to sell his shares and the buyer would be unable to purchase the company.
Strategic investment options should be taken up by start-ups only if they are unable to get venture capital or angel investment, which would give them flexibility in their business model, besides being able to make money in case of an exit.
In angel and venture investments, the investor is looking at an exit. Which means he is looking at selling the shares of the company in a given time period and at a higher price. Your business model will tell you if it is possible to give someone a return in, say, five years, which might be more than he could have made elsewhere. In most cases, the return does not come from the profits that may be made from the business; it comes by selling shares. If you do not wish to ever sell your company to another company or to an investor, a strategic investment would be a good option. indian matka
Angel and venture capital work well for companies whose share value can grow multifold in a few years because of the infusion of capital and because the investors can make an exit. If the company is going to make revenue and profit, but its value is not going to grow multifold, it would not be of interest to investors.
Another point is that if the company has a stable business model with a healthy revenue line, but if no other company is likely to buy it and the company might not reach the size of an IPO, there is no way an investor could get an exit. That can become a hurdle for an angel investor or a venture capitalist.
Having said all this, there are always exceptions to the rule and more so in investments. An entrepreneur should always meet as many people as possible, in connection with any part of his business and, especially, with investors. If nothing else, it will give him immense knowledge. Learn more about choosing the best investment option for startups only at the University Canada West, one of the renowned universities in Canada, offering various business and management related programs.
