Angel Financing refers to backing from one or more individuals who take an interest in helping small businesses in the early stages of development grow. These investors make most or all of the same demands that professional venture capital firms make, but are sometimes interested in (or limited to) smaller financing that would typically interest a venture capital firm.

Venture Capital is financing that comes from firms that invest in young, privately-held companies. Generally, they prefer to invest in companies that have already received significant equity investments from the founders, and / or their friends and family, and have something to show for their efforts, either in the form of a patent, a proven demand for the product, or a very special idea.

Public Market IPOs are usually available to companies with profitable operations, management stability and strong demand for their products or services. This generally doesn’t happen until the company has been in business for several years. While a start-up may not be able to access public markets right away, it can improve its future appeal by being careful in structuring its early financing.

Direct IPOs made directly by the company, are possible through the Small Corporate Offering Registration (SCOR) form U-7. In such an offering, a company sells stock to the public without the benefit of an underwriter. They usually require a relationship between the company and a target investor group that is able to invest high-risk capital in a young company.

Early stage financing is usually provided by family and friends and angel investors. Angel investors can be individuals, partnerships or loosely organized groups of accomplished entrepreneurs. Angel investors are usually wealthy individuals or business people who make high-risk, potentially high-yield investments in start-up companies or small businesses. Angel investors typically focus on companies that have already developed a basic concept and business strategy, and are beyond the seed stage of investment. An emphasis is placed on business enterprises with the potential for rapid growth. In addition to offering significant capital to launch business entities, many angel investors also offer their business expertise and actively participate in the management, operation, and marketing of the business.

Financing for emerging businesses is often lacking or difficult to obtain as commercial banks generally don't lend funds to companies with little to no assets, customer base or sales history. Angel investors can finance the early development of business ideas and prepare a company for later stage financing by venture capitalists and private equity investors. Angel investors form a critical bridge between early business development and the later growth stages of emerging businesses.

Angel terms usually are structured in one of three ways; promissory notes with the option to convert the debt into equity, convertible Preferred stock, or common stock. Overall, the deal hinges on the quality of the relationship between the angel and the entrepreneur. Angels want to make a considerable profit on their investment, given the high risk of an early stage venture. But for the entrepreneur willing to give up some equity and perhaps share some decision-making, angel terms can provide an excellent capital source for new venture development.

Once a start up company is further along in generating revenues and attracting a larger customer base, venture capitalists are more likely to be an investor in the company. Professionally managed venture capital firms generally are private partnerships or closelyheld corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves. Venture capital firms invest in companies that represent an opportunity for a high rate of return within five to seven years. Venture capitalists foster growth in companies through their involvement in the management, strategic marketing and financial planning of their portfolio companies. They contribute their experience and business savvy gained from helping other companies with similar growth challenges. Typically venture capitalists are oriented to having a long term relationship with the company.

This article is provided by Evergreen Capital LLC through the efforts of Ann Ebersberger, Vice President of Operations.