PQ Pvt. Ltd. is the newly incorporated company engaged in manufacturing of machinery parts proposes to raise the funds through Private Equity and Angel Investors. Explain these equity financing options available to the c

Start-ups are usually equity financed/funded by way of a venture capital/ private equity investors and/or angel investors. (a) Venture Capitalist/Private Equity Venture capital ("VC") / Private Equity ("PE") is often the first large investment a start-up can expect to receive. Convertible instruments are usually the preferred option and most commonly used securities for VC/PE investment which includes compulsory convertible preference shares and compulsory convertible debentures. The investor and start-up will normally enter into a non-binding offer based on the preliminary valuation of the start-up usually followed with a financial, legal and technical due diligence on the start-up as required by the investors. Due diligence will help the investors to finalize the representation and warranties and also to identify conditions precedent to the completion of investments and conditions subsequent in the aforesaid transaction documents. (b) Angel Investors Angel investors are usually individuals or a group of industry professionals who are willing to fund the venture in return for an equity stake. Under the SEBI (Alternative Investment Funds) Regulations, 2012, SEBI has made the following restrictions applicable to angel funds investing in an Indian company: (1) Angel funds shall invest in venture capital undertakings which: complies with the criteria regarding the age of the venture capital undertaking/startup issued by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry, Government of India vide notification no. G.S.R. 180(E) dated February 17, 2016 or such other policy made in this regard which may be in force; have a turnover of less than ₹25 Crore; are not promoted or sponsored by or related to an industrial group whose group turnover exceeds ₹300 Crore; and are not companies with family connection with any of the angel investors who are investing in the company. (2) Investment by an angel fund in any venture capital undertaking shall not be less than ₹25 Lakhs and shall not exceed ₹10 Crores. (3) Investment by an angel fund in the venture capital undertaking shall be locked-in for a period of one year.