When a company “takes” money from an angel group or a venture capital fund, or those investors “bet” on a particular startup, there is (hopefully!) no theft and no gambling involved.
These cliches are used to describe something less glamorous: a sale of shares in a company in exchange for money paid to the company.
An angel group like VentureSouth might invest $1 million into Altis Biosystems to buy a minority equity stake in exchange for this cash. A company like Altis might take this money and sell some shares because it can grow faster by investing this money in technologies, sales people, or other things.
Selling equity is an expensive thing for companies to do, but is often necessary because companies are risky propositions. Investors need the opportunity of a good return before they can be persuaded to part with their hard-earned cash.
Wouldn’t it be better if there were less expensive ways for companies to raise money?
As angel investors, you might be surprised when we would say “yes, it would.” If there are cheaper (or otherwise better) forms of financing, we would always encourage companies to go access them first. A problem, of course, is that finding that financing can be hard.
These forms of funding generally fall under the term “non-dilutive funding”. There are other guides and thoughts out there about non-dilutive fundings. Rather than cover that ground again, over the next few posts, we will share more information about one specific source of capital – SBIR and STTR grants – and how they can be a nice complement with angel investing in the Carolinas.