Frequently Asked Questions

Angel investors are usually experienced entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less-than-full-time basis. Thus, in addition to funds, angel investors can often provide valuable management advice and important contacts to help you grow your business.

An investor who provides financial backing for small start ups or entrepreneurs. Angel investors are usually found among an entrepreneur's family and friends. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times. Angel investors give more favorable terms than other lenders, as they are usually investing in the person rather than the viability of the business. They are focused on helping the business succeed, rather than reaping a huge profit from their investment. Angel investors are essentially the exact opposite of a venture capitalist.

We suggest you not to give away too many details in your proposal. It's all about getting the investor excited therefore write enough to get the investors interested in your business. Our mentors will talk to you and guide you as part of our service. When dealing with an angel investor, at the very least your proposal should address the following:

• How big is the opportunity?
• What need does it address?
• How much capital is required and how will it be allocated?
• Equity you are willing to provide in return for the investment?
• The team that will execute the plan?

The types of financing options roughly correspond to the stage of a start-ups' development and amount of risk capital required.
Seed funding: Small funding given to prove a new idea, often provided by angel investors, incubators or accelerators. Crowd funding is also emerging as an option for seed funding.
Start-up funding: Early-stage ventures need funding for expenses associated with marketing and product development. It is normally provided by early stage venture funds, like YourNest, or angel funds.
Early Stage (Series A): At this stage some of the risks associated with a start-up have been negated or refuted, the market has validated the concept and its value proposition to some extent. Normally known as Series A funding, it continues to be an early stage funding but for growth. YourNest normally participates in such subsequent round of funding, also.
Growth Stage funds: These Venture Funds provide growth capital to established businesses who are now ready to scale-up, on the back of significant brand building, or ramping the manufacturing or production capabilities.
Bridge Round: Working capital for early stage companies that are selling their products or services however, are not showing cash profits, yet. These funds are intended to finance the process to "go public" or a "private equity" round.

Venture capital firms are professional investors who dedicate 100% of their time to investing and building innovative companies on behalf of third party investors or their limited partners. The angel investment community is a more informal network of investors who invest in companies for their own interests. Typically, angel investors invest less than $1 million in any particular company, whereas venture capitalists usually invest from small cheques to say up to $20 million.

Venture Capitalists are long-term investors who take a very active role in their portfolio companies. They invest with a horizon of 5-8 years, on an average. The initial investment is just the beginning of a productive relationship between the venture capitalist and entrepreneur. Venture capitalists bring value by providing capital and management expertise. Venture capitalists often are invaluable in building strong management teams, managing rapid growth and facilitating strategic partnerships.

The resource and expertise of a Venture Capitalist not only provides funds, without the regular repayment liability, to a start-up but also provides several other less tangible benefits such as handholding and coaching. The VCs share a common desire of succeeding with the entrepreneuer. A start-ups success or failure is the VC's success or failure. VCs bring expertise, experience, contacts and discipline, to the table. The presence of a venture capitalist also lends credibility to the company.

Venture Capitalists invest in private enterprises and get return on investment as and when they dispose-off their shareholding to another investor. "Exit" is a crucial moment for any VC. Typically, an "Exit" could be achieved when the portfolio company goes public (IPO) or merged or purchased by another company.

Venture Capital is a subset of Private Equity. Therefore, all Venture Capital is Private Equity, but not all Private Equity is Venture Capital. Both PE firms and VCs invest in companies and make money by exiting - selling their investments. The key difference is that PE firms buy mature companies whereas VCs invest, mostly, in early-stage companies.

The risk associated with early stage investments is expected to be high due to a variety of reasons. The portfolio company may be less than 3 years old, promoted by first generation entrepreneurs, offering a service or product for the first time in a market. In some cases, they may have revenue, but may not have achieved break-even. Most VCF exercise risk mitigation through - Time & Portfolio Diversification - Investment is spread over 3-5 years so that all investments are not made at the peak of a economic cycle. Moreover, 10-15 start-ups are nurtured so that the risk is balanced across the portfolio. Milestone based disbursements - Investment tranches are linked to realistic milestones so that capital is optimally utilized. Effective deal structuring & investor protection - This is ensured with measures such as founder vesting, founder lock-in, pre-emptive right, liquidation preference, information rights, right of first refusal, valuation protection, tag along, drag along, special rights to exit etc.