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Financial Institutions and Markets
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Financial Institutions and Markets
An angel investor is a business or startup owner who donates capital in exchange for debt
or equity. Most investors cannot support startups; thus, angel investors often help them early on.
On the other hand, some of the investing approaches utilized by private equity firms to support
and participate in private equity of new or established businesses include venture capital and
growth equity. In this paper, I will examine the characteristics of angel investors and the
common exit strategies adopted by private equity firms.
Angel investors are affluent individuals who are willing to forfeit their capital if the
venture in which they participate fails. They contribute their talents and knowledge to startups
but are not compensated financially. Instead, they are compensated with stock options and a
share in the company. Angel investors frequently offer more favorable terms than traditional
lenders because they are more concerned with the entrepreneur’s entrepreneurial spirit than the
business’s profitability (Ganti, 2022). Angel investors are more interested in assisting businesses
than in the potential Return on their investment.
When it comes to selling their assets, private equity investors have a variety of exit
strategies. These include initial public offer(IPO), secondary sale, and liquidation. The IPO
strategy comprises the corporation conducting an initial public offering and selling its stock to
the general public. Investors may sell their shares immediately or after the company’s shares are
listed and begin trading on the exchange. Stock market floats should only be used by truly large
corporations that can afford to do so as a result of the aforementioned post. A secondary sale
occurs when a private equity firm sells a stake in a company to another private equity firm. As an
example, a corporation may need more money than it has available in its equity fund, which
could lead to this situation. Existing private equity investors as well as new equity investors may
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be interested in purchasing the company now that it has reached a certain stage of development.
Finally, liquidation is the least desirable option, and it may be unavoidable if the promoters and
investors cannot run the business properly (Finance Train, 2020).
In brief, the exit strategy of private equity firms can dramatically affect Return on
investment. Increasing technology advancements make it difficult for vendors and purchasers to
agree on dangers and possible value sources. On the other hand, most angel investors have
excess capital and seek more significant returns than standard investment options.
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Reference
Ganti.A., (2022, Mar, 22). Angel investor.
https://www.investopedia.com/terms/a/angelinvestor.asp
Finance Train (2020). Exit strategies for private equity investors. https://financetrain.com/exitstrategies-for-private-equity-investors
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