Investors In Startups: The Differences Between Angel Investors And Venture Capitalists
In many of my articles on investment and startups, especially on funding, I always mention the need to work with venture capitalists and angel investors. Interestingly, they perform the same function of helping you fund your business but their modes of operation are not exactly the same. This is why I want to show the differences between angel investors and venture capitalists.
Another motivating factor is the fact that I have also been asked some questions about this. On Google search, you will see people frequently looking up the following
Difference between an angel investor and venture capital and private equity
What’s the difference between venture capitalists and angel investors?
Advantages of angel investors vs venture capitalists
Angel investor’s vs seed funding
How do the angel investors and venture capital firms hope to make money on their Investments?
Investing in venture capital
Is angel investing venture capital?
Difference between venture capital and seed capital
All these are pointing to the need to know the differences between angel investors and venture capitalists. Well, for those that have money to start up their businesses, there might be no need to mingle with venture capitalists and these investors until at a later time.
Be that as it may, they will eventually need to meet up with these investors even if they have all the money they need. Therefore, startups and running businesses will do well to understand the importance of these investing platforms and their differences.
We will just get to it immediately. But just before we do that, you should know that there are many ways startups that can raise a fund that does not involve getting investors. But, just to be ready as you should as an entrepreneur, you must be aware of every option you have.
We will handle the differences between angel investors and venture capitalists by looking at certain salient points. You may realize that their differences are not alarming but you do need to know who you are getting in bed with.
The Differences Between Angel Investors And Venture Capitalists
While an angel investor prefers to work alone, the venture capitalists are always part of a company
This is the first point of the differences between angel investors and venture capitalists. You see, the business angels or angel investors are those individuals who invest their personal funds in a good startup. These individuals are usually rich people who want to invest in companies (startup) and take equities from it. So, technically speaking, an angel investor is usually acting as an individual.
On the other hand, venture capitalists usually a group of technical and professional investors and they raise their capital from corporations, foundations, and individuals too. They are limited partners. Sometimes, these people work closely with the founders and they are referred to as general partners. They manage funds for the startup and work on the company’s growth.
For more on this difference, check this.
The stage of the company
Another major difference between angel funding and venture capital funding is the stage at which they come in to invest. For the business angels, startups and early-stage businesses are the major targets. Majorly, the businesses that are just entering into the market research and technical development stage are targeted.
The venture capitalists on the other hand focus solely on successful entrepreneurs and businesses. They only invest in startups on rare occasions and unique situations. Businesses that are established are invested in; they are cultured and are seen through to the IPO or merger stages.
The amount of money involved
The amount of money that angel investors and venture capitalists bring in to the business is another point of difference. For angel investors, the money is usually small compared to what the venture capitalists will bring.
The money brought in by angel investors are usually referred to seed money and they are usually small contribution. It is about helping a business startup. There are rare cases when the investors are generous. On the other hand, venture capital is meant to help businesses that have established itself in the market. The money is usually higher to enable businesses to become the best it can.
The timescale of the investment
Usually, venture capitalists leave their investment with the company longer than the angel investors. The angel investors typically leave their investment for a period of 2-5 years. On the other hand, the venture capitalists leave their investment for a period of 10 years and above. It is up to you to know when to go in bed with the business angels or the venture capitalists.
Expectations from them differ
Remember, there is a difference in the amount of money gotten from them and the reason for investment, it is only normal to have a difference in the expectations from them. The angel investor should be expected to offer financial advice and can also offer connections to important people in the industry. That is about all they can do for you.
On the other hand, the venture capitalist in addition to providing advice and connections will probably demand a seat at the board table. It is almost the standard. They will want to have a direct say in the decisions of the company.
You can check these difference from Gouchevlaw for more information on the differences between angel investors and venture capitalists.