Business Angels, VCs and PE – Key differences

Let’s start with the basics. There are multiple types of investors. Common ones are described in order of entry.

Friends, Family and Fools (FFF)

This is your first round of investment, where people take pity on you, or want to support you, simply because you are related to them, love you or like you.

Business Angels

Business Angels are professional investors who would invest in your business with the hope of making a monetary return, usually with the intention of a multiple. Some are passive investors. Others are active and may demand a role such as Chairman or None Executive Role. They may levy fees for taking such a role.

UK’s SEIS/EIS tax laws have created many business angels

Venture Capital (VC)

Venture Capitalists (VCs) mainly invest money from pension funds and others generally known as Limited Partners (LPs). As part of the deal, they would also need to invest their own money. VC raised funds, where LPs and themselves invest in. Then the fund would invest in multiple companies. VCs expect returns from 10x to 100x and beyond.

Private Equity (PE)

Private Equity (PE) usually buys a majority chunk of the business with the intention of turning it around in 3 years for a 3X return.