Venture capitalists and angel investors are companies that take higher levels of risk by investing in business ventures that are riskier in nature, and usually are unable to obtain funding from other sources such as banks and financial institutions. Since venture capitalists and angel investors both invest in high risk businesses they both expect to gain large profits, which are their motivation for such risky investments. The following article provides a clear overview of each type of investor and outlines the clear similarities and differences between the two.
Angel Investor
Angel investors are individuals who are very wealthy and have enough funds to invest in risky businesses. Angel investors typically invest their own funds; therefore, there is less structure and oversight in the investment made. Angel investors usually invest in smaller startups with promising, future outcomes. The companies that are chosen by angel investors are in between those that banks and venture capital companies invest in; as they are smaller in size, and higher in risk. Since investments are made in smaller premature firms, the investments made are usually smaller in value, usually up to $100,000.
Venture Capitalist
Venture capitalists refer to larger companies and business entities that collect funds from a number of investors and corporations to invest in risky businesses. Since venture capital firms invest the funds of other entities, there are more complex procedures and oversight where the companies/individuals investing will be more involved and observant. Venture capital firms invest in more mature and larger corporations and usually prefer to invest in companies that have established themselves and are looking for further investments to grow. Since venture capital firms invest in mature firms, they make larger investments, sometimes larger than $10 million.
Venture Capitalist vs Angel Investor
Angel investors and venture capitalists both offer equity funding and, in other words, they provide capital for businesses to startup or grow. Both angel investors and venture capital firms take larger levels of risk as they invest in businesses that traditionally don’t look attractive to banks and financial institutions. Angel investors look for startup firms, and may not have an interest in a particular industry or market provided that the investment idea interests them. Venture capitalists, on the other hand, invest in companies that are more mature than startups and are looking for further growth opportunities. This means that venture capitalists will usually be more interested in high growth industries and emerging markets. Since angel investors invest their own funds, the investment is usually smaller and will have less stringent oversight. Venture capitalists invest funds from external investors and are, therefore, more careful in how they handle finances and invest funds.
Summary:
• Angel investors and venture capitalists both offer equity funding, and in other words, they provide capital for businesses to startup or grow.
• Both angel investors and venture capital firms take larger levels of risk as they invest in businesses that traditionally don’t look attractive to banks and financial institutions.
• Angel investors usually invest in smaller startups with promising future outcomes.
• Venture capital firms invest in more mature and larger corporations and usually prefer to invest in companies that have established themselves and are looking for further investments to grow.