venture capitalists vs angel investors
Venture Capitalists Vs. Angel Investors
If you have a start-up and want to raise capital, you should know whether venture capitalists or angel investors will prove to be better investors for your business. For a clear understanding about the same, this write-up will explore the difference between the two.
Choose Wisely
While angel investors can dominate your decisions, it is the venture capitalists that may take away a portion of your business.
If you are looking out for funding your business and are confused between venture capitalists and angel investors, it is advisable that you compare both the options and find which one suits your requirement. While venture capitalists will enable you to get a higher amount of capital, they will not be interested in a low cost investment. On the other hand, if angel investors find your idea compelling enough, they will give you the required funds even if it is a small amount. Also, while venture capitalists will invest in a business that has profit potential, most angel investors will prefer to invest in industries which they have knowledge about. However, a venture capitalist will support you only if you have a profitable venture irrespective of the industry. This Buzzle article will tell you more on this popular financial debate.
Difference Between Angel Investors and Venture Capitalists
About
Venture capitalists are individuals or companies who help a start-up to develop and expand by providing the necessary capital.
Angel investors are individuals or groups who finance a start-up venture.
Suitability
Funding from a venture capitalist should be availed when your business idea has taken off, and you want to develop your venture further.
You should seek funding from angel investors when you require seed capital to implement a workable innovative idea.
Industry Understanding
Venture capitalists do not restrict their investment to a field where they have the understanding of the industry.
Angel investors usually like to invest in industries where they have knowledge, experience, and interest.
Approach
Venture capitalists go out and find entrepreneurs for investment. Hence, there is a level of professionalism involved.
Angel investors are usually looking for a good idea to invest their savings. Many times, the angel investors know the entrepreneur personally and are not as professional with them as venture capitalists are.
Contribution
A venture capitalist contributes the capital and important contacts which help the business. They do not provide any kind of mentorship to the entrepreneur.
An angel investor is usually a successful entrepreneur who not only provides capital and contacts but also imparts valuable business advice to the entrepreneur from time to time.
Profit Motivation
The prime motivation of venture capitalists is 'ROISAP' (return on investment soon as possible) as they will like to get the bonus on their investment at the earliest.
Angel investors invest in the idea and the entrepreneur, rather than the business. They are not as driven by profit as venture capitalists are.
Capital Sourcing
Venture capitalists do not use their own money. They invest the money which they source from individuals, families, pension funds, corporations, trusts, college endowments, etc.
Angel investors mostly invest their own savings in the start-up venture.
Raising Finance
Venture capitalists often pool their funds for investments, and this leads them to raise more funds.
As angel investors are individuals or a group of people, they are not able to raise funds beyond a certain limit.
Difficult to Impress
As venture capitalists invest in a business only if it promises a high rate of return, it is very difficult to convince them for their funds.
Angel investors are relatively easy to impress if you have a strong business pitch.
Easy to Find
Comparatively, it is easy to find a venture capitalist by researching offline and on the Internet.
It may take months to find the right type of angel investor who will be ready to invest in your idea.
Board of Directors
Most of the time, venture capitalists want to acquire a position on your company's Board of Directors and impose their veto rights against the funding they provide.
Angel investors may show a keen interest in running your business their way, but in most cases, they will not pressurize you into putting them on the company's Board of Directors.
Risk Approval
Venture capitalists have a long and complicated process to evaluate the risk involved in a venture. This may take a lot of time.
If an angel investor finds that the raw business idea is viable, he will evaluate the risk immediately and give a nod for the investment.
Level of Risk
Venture capitalists are usually large companies or financially strong individuals, so they can take a higher risk as compared to angel investors.
Angel investors cannot take a risk as big as venture capitalists as they are usually individuals or a group of people.
Investment Amount
A venture capitalist, being a big player, does not give you funding if you require $50,000 or less. It is said that the minimum amount of funds preferred to be invested by venture capitalists range between $1 to $2 million.
On the other hand, angel investors do not mind putting in a minimum seeding capital as per your requirement.