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Ali Y. Abbasov: Modern Venture financing options in the U.S.A.
entrepreneur will be liable for that. Business angels are investors and an entrepreneur needs to
realize that they will want to get a return on their investment (Morrow, 2013). It also lessens the
profit return to the entrepreneur, as they will have a lower ownership percentage in the company.
Probably the two biggest disadvantages to business angels are successfully finding one,
and getting matched up with one. Most entrepreneurs find angels through word of mouth
(Morrow, 2013). This means a lot of networking and a lot of time to find a business angel. It
may be harder to find an angel then the entrepreneur thinks.
There are now more angel groups or bands, where several business angels work together
to capitalize on high – growth business. Even using one of those, the founder of Capital Growth
Inc. said that it is like dating, ―Angel forums are a great place to meet people, but the right match
isn’t always the person you meet the first time‖ (Morrow, 2013). So even if an entrepreneur can
find a group of angels that have interest in their venture, they may have difficulty finding an
actual angel who wants to fund their particular business.
Venture Capitalists (VCs) are more formal than business angels. They are individuals
who join an organized venture capital firm to raise and distribute funds to new and growing
ventures (Leach, 2012, p. 25). This type of capital is often sought after in the second round of
financing during the rapid – growth stage. It is used by entrepreneurs to support working capital
and expansion (Leach, 2012, p. 26). This may be the next step in financing after using business
angels in the start – up stage and then moving on to hyper growth.
The advantage to venture capitalists is the ability to use outside funding to support rapid
growth. It is similar to business angels in that a return is expected, but immediate interest
payments are not required like debt.
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