Who should you go to for funding and how much money should you ask if you are a young startup? What is the difference between a venture capitalist and an angel investor? Read the article below.
Investor Angel vs Venture Capitalist: Who Is Who?
The world of venture capital can seem very confusing and incomprehensible to an outsider, closed and not subject to deep understanding. To whom to go for money, what amounts can be discussed, and under what conditions to attract investments? And where can you find experienced people who will help you with advice, get to know a potential client or a required specialist, help you grow, and enter new markets? The following article gives a clear overview of each type of investor and outlines the clear similarities and differences between them.
There is a lot in common between business angels and venture investors. In most cases, they are looking for the same things in the investment market as venture capitalists, but there are still a few differences that an entrepreneur should be aware of in order to form the right strategy for attracting investments. Venture capitalists and business angels are:
- Companies that take on a higher level of risk by investing in inherently riskier business ventures, and are usually unable to obtain funding from other sources such as banks and financial institutions.
- Since venture capitalists and business angels invest in high-risk businesses, they both expect to make big returns, which is their motivation for such risky investments.
- Both an angel investor and a venture fund (VC) invest in startups. Both are focused on making a profit and looking for projects from which they can get the maximum ROI.
Business Funding: Difference Between Venture Capitalists and Angel Investors
Companies that are just entering the market or introducing a new product to it, at the start or at subsequent stages of development, often require additional external financing. One of the options for obtaining it may be cooperation with a business angel or venture fund.
Business angels or angel investors are very rich people who have enough funds to invest in risky ventures. Business angels usually invest their own funds; therefore, there is less structure and less control in the investments made. Business angels usually invest in small startups with promising future results. The takeover by one legal entity of another can be defined as the acquisition of appropriate control and management of its assets with the acquisition of full or partial ownership rights.
As a rule, business angels are wealthy individuals who can invest their own funds in the early stages of the development of new startups, receiving securities or convertible bonds in return. Business angel funds occupy an intermediate position between the needs for project financing and their own profit in the future.
- Since business angels invest their own funds, they can come from various sources:
- Money received after the sale of your own company;
- Profit received as a result of business activities in another area;
- Family savings and others.
Venture capitalists refer to larger companies and commercial organizations that raise funds from a range of investors and corporations to invest in risky ventures. Since venture capital firms invest funds from other organizations, there are more complex procedures and oversight in which investing companies/individuals will be more involved and oversight.