Scouting for an investor to inject funds in your company? Okay, but before you sign up, take out some time to figure out exactly what kind of a funding option will suit your business, and your temperament.

The right kind of financing model for your start-up could make all the difference between success and failure, and it is worth the while to thoroughly examine the options and make a well-informed decision. Depending on the scale of your business, you can opt for private equity, or seek an angel investor, or go for the big guns - the venture capitalists. Each of these investors will behave differently and exercise different levels of control over your company. Here's a look at how these investors operate, and the pros and cons of seeking funds from them.

Private equity

Private equity simply means equity capital that is not listed on the stock market. The term encompasses a broad group of companies that operate as private owners of other firms. Private equity consists of investors and funds that make investments directly into private companies, or conduct buyouts of public companies that result in a delisting of public equity. Private equity firms raise capital from retail and institutional investors, which they use to fund new technologies, expand working capital within an owned company, make acquisitions, and so forth. Private equity investments often take into account long holding periods. They would have to wait for various reasons -- a company in distress to turn around, a company to go for an IPO, or a private company to be picked up by a public firm.

Angel Investor

An angel investor provides capital for a start-up venture, usually in exchange for equity ownership or convertible debt. Angel investors are generally individuals who invest their personal funds in a potentially rewarding business opportunity. However, they may also organize themselves into angel groups or angel networks to share research and pool their investment capital.

An angel investor is most likely to take a seat on your board of directors, which would enable it to monitor the investment and give advice on the running of the company. Raising investment from an experienced angel investor enables a business to get started fast as they do not spend too much time on due diligence, and the investment comes in a lump sum since the amounts involved are not too big.

Angel investment is an invaluable source of funding if the business is at an early stage. Venture capital firms may come on board at a later stage when the concept is proven. However, since angel investors invest their own money, they generally tend to be risk-averse, and rarely make follow-up investments.

Moreover, they seek a high rate of return. So, if you are planning to seek out an angel investor, you are far more likely to find one if your venture is not outlandish, or your expectations are not too high, or you are not overtly ambitious.

Venture capitalist

Venture capitalists are companies that invest large sums of money sourced from other people and institutions. Venture capital firms raise money by offering investors a chance to take part in a fund that is then used to buy shares in a private company. The risk appetite of a venture capital company is high and it will invest in a firm even when there is no guarantee of success.

This class of an investor is seldom interested in early-stage funding; they go for higher volume investments and involve themselves much more closely in the running of the company they invest in. A seat on the board of directors is a given with venture capital investment. On their part, venture capitalists offer hands-on expertise and managerial assistance. They often provide access to senior executives such as an experienced head of manufacturing or marketing, as well as a ready base of customers.

In addition, companies which seek venture capital can be assured of assistance and expertise from the word go - this is in favour of both the venture capital company as well as the firm seeking funds as both parties would have a high stake in the smooth running of the business. Serious mistakes can, thus, be avoided.

The negative associated with a venture capital company is that it typically seeks too much control in the running of the business. Some entrepreneurs may not be able to put up with the level of interference exercised by a venture capital partner.

In the end, if the business is at an early stage then an angel investor is the best option; venture capital firms may come on board at a later stage for a subsequent round of funding. Before approaching a venture capitalist, a company would have to demonstrate a degree of success in the past. Angel investment in the first round can often ensure that.

The writer is chief executive of Price Global Group. Views expressed are his own and do not reflect the newspaper's policy.