I know I know. I’m beating this stuff to death. But I felt it necessary to wrap up Weakon 313 and 314 with a summary post. Most of my ideas for posts like this come from my everyday encounters with people and learning what’s been pickling their brains lately. This can be basic stuff like the difference between a stock and a mutual fund, which I’ll never cover, or something more complicated like the difference between GAAP accounting and IFRS accounting, which I will also never cover. But many questions are worth covering, which is why I’m here.
So in order to learn the differences between private equity (PE), venture capital (VC) and angel investing let’s quickly review what each of them are.
Private Equity: PE is a number of different types of investments that can be made with private money. These investments may be made to purchase a company, provide funding for a project, or simply make a private investment because you aren’t interested in stocks.
Venture Capital: VC is a specific investment strategy designed to provide funding for startup companies. It’s a very popular financing source for technology companies. It allows for fast growth without needing revenue at an early stage. It’s highly risky, but can be quite lucrative.
Angel Investing: Before you take your company to venture capitalists you need to probably get some funding before then. You come to angel investors who provide similar startup financing to VC, only in smaller denominations. You may only need $100,000, and for that you won’t find an interested VC firm, but you might find and angel investor.
Now that you’ve had a review, let’s get to the good stuff. Angel investing is a type of venture capital which is a type of private equity. There you go. It’s like saying a house-cat is a type of feline which is a type of mammal. Each needs their own definition otherwise we can’t actually explain what we’re talking about. If you tell an MBA student you’re looking for $100,000 in private equity, they’ll look at you like you’re the idiot you are. You’re looking for angel money. If you tell an MBA you’re looking for $5 million in private equity, they’ll again look at you like an idiot. You’re looking for VC money. Once you’re above that mark you have to start considering other options. One popular one is “going public”. This is when your ownership is converted to stock and is publicly traded. Private equity deals may come in later, especially if you decide to take your now billion dollar company private again.
It’s perhaps confusing but I’ve given you enough to work with and wow your friends with all your private investment knowledge. Just don’t pretend to be too smart, because you might actually work with The Weakonomist and he might strike you down.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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