Angel Investors and Acquisition
Ever wondered the difference between a takeover and an acquisition? Or finding it hard to differentiate between angel investors and venture capitalists? This blog will give you an insight about these terms.
Acquisition is a situation where a company purchases most or all of another company’s shares, in order to take control. Acquisition occurs only when more than 50% of the ownership of the company is bought. The acquiring company purchases the company’s stocks and other assets, which allows it to take decisions regarding the newly acquired assets without the target company’s approval. Acquisition occurs for various reasons like for achieving economies to scale, greater market share, increased synergy, cost reduction or niche offering. One more major reason being, to expand their operations to other countries. Buying an existing company is the easiest way of entering a foreign country.
For example, a US based company, Walmart acquired 77% equity of Flipkart at about $16 billion. There couldn’t be a more convenient way for Walmart to enter the Indian market.
There is a fine line of difference between a ‘takeover’ and an ‘acquisition’. Although, both are often interchangeable, takeover suggests that the target company resists or opposes the purchase. In contrast, acquisition is a more amicable term where it usually refers to a ‘merger’.
They invest in small start-ups. Usually, they are among, the entrepreneur’s family or friends. An angel investor may provide the entrepreneur with one-time investment to help the business propel, which is basically, helping a start-up financially through its difficult early stages. Angel investors invest in the entrepreneur at the start of the business rather than the viability of the business. Basically, they are focused on helping start-ups take their first steps, rather than the possible profit they may get from the business.
Angel investors are exactly the opposite of venture capitalists. Usually, venture capitalists takeover 20-30% of the company with huge investments. They expect large amounts of returns as well. Also, they interfere in the decision-making process of the company.
For example, Jeff Bezos, the founder of Amazon, was ranked number 7 Top Angel Investors in Tech 2010, in Businessweek. Domo and Everfy being his recent investments.