Angel Investor vs Venture Capitalist: in this article, we are going to compare the differences and also look at the resemblance. For most investment start-ups, sourcing funds could be challenging but they are two prominent ways to sort it out. Angel investors vs. venture capitalists, both provide funds to start-up firms at an early stage.
These two types of investors have the similarity of providing funds but are different in other ways. For instance, their differences lie in financial support, method of approach, size, and extent of investment.
In our previous article, we already explain what an Angel investor is and how it works. Also in another article, we emphasized venture capitalists and how they work.
Therefore in this article, we will explain the difference between these two types of investors.
Angel investor vs. venture capitalist
1. They differ in definition
Angel investors are wealthy individuals who look out for potential start-up firms at an early stage to invest their personal funds. When seeking to fund a start-up, they seek firms that have similar experience and skills of expertise. So that they can also contribute to its growth.
Venture capitalists are a group of experts who pool their funds together to invest in a start-up. It is usually an organization or group of individuals who share a common interest in a line of business.
They are stricter in funding as they require some criteria from the organization before they can invest. For this reason, they also invest their knowledge, time, and decision.
2. The amount of fund
When it comes to funding, given that angel investors are single wealthy individuals they contribute a limited amount of funds. The amount usually varies from a hundred to millions of money. Since it is their personal wealth, they are less harsh in both agreement and decision.
The venture capitalist has a larger amount of funding than the Angel investor. They can fund a start-up with amounts as large as hundreds of dollars. The amount varies depending on the size and potentiality of the business.
3. The process of funding
Angel investors who are wealthy individuals usually take full participation in the business. From being a sponsor to providing guidance, then to making a decision that favors the business. The process is a flexible process that does not require much protocol.
Venture capitalist, on the other hand, which is made up of an organization or group of individuals, has a more prearranged process of funding. They take out time to assess and analyze the start-up’s managerial strength, business module, and market potential.
If after evaluation they are satisfied with the result, they commence commitment of funds. They use a more strategic process which may include decision-making and investing in their expertise fully.
4. Control and Equity
When angel investors invest their funds they also acknowledge any risk that arises. This is the more reason they usually engage fully in the business. Then at the time of profit, they gain a better percentage for the risk. They benefit more from the equity stake.
Venture capitalist tends to be the opposite of Angel investor when it comes to Equity and control. They seek lower equity stakes since they are a group of individuals who pool funds together. A large amount of money helps them in achieving their investment return.
5. Risk tolerance
Angel investors exercise an aggressive level of risk tolerance because they understand that every investment is subject to risk. They recognize the implications at an early stage yet they are willing to take the risk and work towards achieving success.
On the other hand venture capitalists are conservative in risk tolerance. They also understand the possibility of risk occurrence. However, due to their strict funding procedures, they are more decision-oriented in other to deliver good results to their partners.
Do Angel Investor and Venture Capitalist also have similarities?
Having outlined the differences between Angel investors vs. Venture capitalists, it is important to note that they also share some similarities. We have therefore decided to point out the resemblances in other to make Angel investors vs. venture capitalists clearer to understand.
Here are some similarities between Angel investors vs. Venture capitalists.
1. Funding start-ups
Angel investors and Venture capitalists are both interested in funding potential start-up firms. Angel investors seek to fund at an early stage while venture capitalists show up when the business is struggling to build a brand.
2. Understands the risk
Both types of investors understand that any amount of funds they commit can be subject to risk. For this reason, both Angel investor and Venture capitalist has their way of handling any loss.
3. Financial status
Both Angel investors and venture capitalists are individuals of high net worth seeking to expand their source of revenue.
4. Expertise
Both types of investors have the similarity of funding start-up firms that are in line with their experience. So that they can also contribute their knowledge, decision, and time to achieve success.
Conclusion
Angel investor vs. Venture capitalist: Both investors provide funds to new start-ups. They both provide a helping hand to an entrepreneur who has dreams but is limited by the fund.
Although both have differences but still come together in similarity to solve a significant need in the startup ecosystem.
As a business owner, it is crucial you understand Angel investors vs. Venture capitalists, and how they differ. It will enable you to make the right decision when deciding your source of funds.
