Invisible Venture Capital
The pure definition of the rather murky term, invisible venture capital, is simply capital provided by angel investors. An understanding of angel investors helps explain the term.
An angel investor differs from a venture capitalist primarily in the fact they are providing their own funds in the investment. The level of involvement in the equity and management position of the company will tend to vary from angel investor to angel investor, but the main difference is they are not managing a fund raised from the investments of third parties, but our using their own. The term invisible venture capital is often used to describe funds provided by angel investors.
The origin of the term comes from the idea that invisible venture capital can be kept much more private than a venture capital fund can afford. The venture capital fund is managing the funds of third party investors and has a basic responsibility to justify their decisions and to report their results. Beyond the reality of disclosure, the venture capital fund will welcome the scrutiny because they are also in the business of raising venture capital to invest. If their investments are wise and profitable, as they should be, they will not object to beating their drums a bit.
The angel investor is not answerable to anyone but themselves and the internal revenue service. The nature of their results and the criteria for their investments decisions need not be a matter of public record. Although angel investors are often joined into groups for the purpose of investing, they remain answerable only to their fellow investors and not the general public. This has made the funding of ventures via angel investors a bit less public and leads to the term, invisible venture capital.
The term unnerves some potential entrepreneurs with its suggestion that it is either not real capital or even is illegal capital. Of course, this is silly, but does point out that the more private nature of the angel investor solution requires a bit of “due diligence” on the part of the entrepreneur. Despite the name, invisible venture capital normally comes from well known private investors. Their reputations and their credentials are usually a matter of public record. If they are choosing to get involve in a management role, they normally are doing so because of vast experience as much as a desire to micro-manage their own investment.
The more important term to the entrepreneur is really “angel” investor. The history of invisible venture capital provided by angel investors has been one of many miracle cures. The angel investors have turned disaster into triumph and failure into success time and time again. They appear, like angels, when all seems dark and no other viable solutions seem to be presenting themselves. Do not let the name, invisible venture capital, fool you, it and the results it can produce are very tangible.