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, Startup event 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 their 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.
2. Investment Size
The range of venture capital funding is larger than the one of angel investors. Angels 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. Angels typically provide under $1 million, venture capitalists mostly above $1 million.
3. Stage focus
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. Vc providers are much less likely to invest at the seed stage and they may provide second round financing after angels. Moreover, their purpose is to take your venture to the initial public offering stage and beyond.
4. Industry focus
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.
5. Geographic Focus
Both business investors 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 angels and venture capitalists generally expect a high rate of return for their investments. Stereotypically, a venture capitalist may have higher return expectations than an angel investor.
7. Expected Control
Angel investors and vc 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.
9. Risk taking
A venture capitalist prefers to invest in a business that will offer security and a high return on investment. An angel 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, whereas venture capitalists are more motivated by profit.