Venture Capital Firms or Angel Investors?
You have a great idea for a start-up business and you are, probably, short on
capital, so raising money is your first concern. You are going to need outside
investor groups, therefore you need to know the difference between angel
investors and venture capital firms
Less is known about angel investing as compared to venture capital, due to the
privacy of the investments. However, these are the key points to consider in
order to make the right choice.
1.Ease of obtaining financing
It commonly takes less time to receive funds from an angel investor, as obtaining
venture capital funds is a highly rigorous process. Therefore, your business
should meet all the investment criteria before being considered by a venture
capital firm.The difficulty with angel investors may arise in case your business
requires funding from several investors, as they could demand different terms.
The range of venture capital funding is larger than the one of angel investors.
Angel investors act alone or in organized groups and invest their own money.
Venture capital firms are corporate entities that pool money from a range of
investors. Angel investors typically provide under $1 million, venture capitalists
mostly above $1 million.
The focus of angel investors is typically the earlier or the seed stage of your start-
up company. Venture capital firms focus on different stages of your business.
Venture capital providers are much less likely to invest at the seed stage and
they may provide second round financing after angel investors. Moreover, their
purpose is to take your venture to the initial public offering stage and beyond.
Angel investors vary in investment areas and may allocate funds to a range of
fields, frequently within their areas of expertise. Venture capital firms generally
concentrate on emerging sectors such as technology or innovation.
Both angel investors and venture capital firms often prefer to invest within the
vicinity of their offices. The purpose is to add management value to your
company and to easily monitor all their portfolio companies.
6. Expected returns
Both angel investors and venture capital firms generally expect a high rate of
return for their investments. Stereotypically, a venture capitalist may have higher
return expectations than an angel investor.
Angel investors and venture capital firms are similar in that they expect a board
position and possibly a consulting role. Both invest in return for an ownership
stake in your company and for a certain degree of involvement, but venture
capital firms will exercise even more control over your company.
8.Support and Expertise
Angel investors will more than likely provide support and advice to the start-up
business. Vc firms generally possess greater expertise, as they prefer to lead
ventures through successive funding stages.
A venture capitalist prefers to invest in a business that will offer security and a
high return on investment. An angel investor is far more likely to be a risk taker
and put money into a venture at the riskier seed stage.
Angel investors are also motivated by the desire to see innovative ideas get off
the ground and become successful businesses. Unlike angel investors, venture
capitalists are more motivated by profit.
As you need to maximize your chances of obtaining the suitable level of
financing, a professional business advisor will make a difference.