Have a Finance Question? Ask a Financial Expert Online.
It really depends on what type of business you are investing into. Generally speaking if you are looking to invest in a start up company then a purchase of shares would most likely be the best method of acquisition.
Generally I see venture capital funds invest into start up companies via a "convertible debt instrument" (which is really just a note payable that is convertible to common shares at a certain date).
The instrument details that the debt is convertible into shares at a certain share price and is generally discounted to give a priority to the note holder. The debt instrument also generally has an interest charge included so that interest is also payable on the debt or payable when converted.
I think this is really the best way to invest in a start up company as you are given priority of repayment if the company ever goes bankrupt. Note that creditors are paid back first in a bankruptcy, shareholders get what ever is left over.
I hope this provides some guidance and clarity that you were looking for.
PS here are a couple of good links I just found on the subject: