Venture Capital vs Angel Investors
The business-funding world has a host of terms and concepts, which sometime cause confusion and need own dictionary. One particular area that may lead to misunderstanding is when describing different types of investors that exist in the business circles. In some cases, entrepreneurs use angel investor and venture capitalist interchangeably because the two are sources of funding. While this is the case, the two investors have an array of differences. An understanding of these differences is important in making a choice, regarding the best option for your needs. In this essay, we shall discuss some of the major differences between the two investors.
The main difference between venture capitalist and angel investor is that the latter uses their own funds while the former invest using funds that they have raised from wealthy people, institutions and pension funds among others. Based on how the investors get their funds, there is a difference in the amount they use. For example, research indicates that angel investors set aside between $50,000 and $150,000 for a single transaction. On the other hand, venture capitalist can invest any amount of money in a single transaction because they source more funds. Since venture capital have larger investments, they have a longer due diligence process. Among others, it may require a board sitting and not a mere percentage of the company together with other complex terms.
In recent year, the super angel has emerged to close the gap between angel investors and capitalists. Here, the wealthy individual participate in funding transaction together with a venture capitalist and invests huge amount of money in each transaction as compared to the traditional angel investor. In choosing the best investor, it is important to consider several factors. For example, it is necessary to know the amount of money venture requires advancing to the next step. In case it is below $100,000 then angel investor would be the best option.
However, venture capitalist becomes the best option in cases where you need chunks of money to invest in a single transaction. The period you will need your money is also important. This is because, venture capitalist is likely to yield more money but one has to wait longer because of its due diligence process. It is also important to consider whether you intend to have a board of directors or relinquish a board seat. This is common in venture capitalist deals while angel investors focus on delivering the financial support going through many processes.
The level of risk in the two scenarios also varies because of the amount each investor intends to inject in a business deal. Angels have a lower risk because they use their own money while venture capitalist take a higher risk by the virtue of investing using other people’s money. Additionally, angel investors are usually willing to invest in early stages, or in business that are starting. These investors may as well consider when established companies as investment targets. On the other hand, capitalist ventures are usually reluctant to invest in early stages. It only happens in rare cases like when there is high technology coupled with successful founders.
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