Choosing Between a Venture Capitalist vs Angel Investor


    When a new company needs money, it usually asks investors for help. There are two kinds of investors: venture capitalists and angel investors. They both do the same thing, which is giving money to the company to help it grow. The main difference is in where the money comes from. Venture capitalists use money from a group or company they work for, while angel investors use their own money. So how do you choose between a venture capitalist vs angel investor? The first thing is by determining their differences.

    What’s the difference between an angel investor and venture capitalist?

    Venture capitalists (VCs) are part of special investment companies. They decide where the company’s money should go. Usually, they give this money to small companies that are just starting and need cash. When these small companies grow and make more money, the investment company gets back more money.

    On the other hand, angel investors use their own money to help startups. These are usually wealthy people who care a lot about the startup they are investing in. Sometimes, they do it because they know the founder or really believe in the company’s success.

    How do venture capital firms fund businesses?

    Both venture capitalists and angel investors put money into companies hoping to make a profit. But the papers they use to do this are quite different.

    Venture capital companies have a lot of money to invest, usually around $9.9 million on average. They gather this money from other investment firms, big companies, and retirement funds.

    Because they invest more money, they do more research. They look closely at things like how the company works, its money situation, the market it’s in, its products, the people running it, and how it has done in the past.

    How do angel investors fund companies?

    Angel investors take bigger risks and do less checking before investing. They don’t control your business as much. They trust the founder and the team more. But they still have valuable knowledge, experience, and connections to help startups grow.

    The difference between angel investor and venture capitalist in terms of partnering

    One challenge when getting money for your business is choosing the right kind. Let’s compare angel investors and venture capitalists to help you decide.

    Venture capitalists might be a good fit…

    • When you need a lot of money. They can give you big investments to help your company grow fast.
    • When you want to meet many people. VC firms have more connections and resources to help you find new team members and customers.
    • When you want another perspective. VCs will share their thoughts on your company’s plans, management, and future.

    An angel investor might be a good choice…

    • When your business plan is still in the early stages. Angels are more willing to invest in companies that might not make money right away. They take a small part of the business early on, and if it succeeds, that can be a good deal for them. They often invest in many companies, even if some don’t succeed.
    • When you want more say in how things are done. Angels trust the entrepreneur to run the business, so they don’t usually interfere with decisions about the company’s direction.

    Repayment terms of venture capitalists and angel investors

    When you work with venture capitalists or angel investors, you usually don’t have to pay back money like a loan. But some businesses mix both ways of getting money in later stages with venture capitalists.

    When you make a deal with a VC or an angel, you give them a piece of your business. This means you’ll get less money back when it’s sold. Venture capital firms make an average of 57% return each year before the company is sold. But these investments can be risky, with big ups and downs (more than regular stocks).

    Angel investors, on the other hand, get around 20-40% return each year. If you don’t want to give up part of your eCommerce or SaaS business, you can try revenue-based financing. They offer friendly deals for founders, giving you money without taking a big piece of your business.

    Angel investment vs VC funding: Which is best?

    By now, you likely know which type of funding you might need:

    • How much money do you need? If it’s a lot, venture capital might be the way to go. If it’s not so much, angel investors could work.
    • Is your business growing well? If it’s already doing great, venture capital might help it grow even more. If it’s still proving itself, angel investors might be more interested.
    • Do you want to keep control? If you want to run your business your way, angel investors might give you more freedom. Venture capitalists often want more say in how things are done.

    Find the best funding sources by understanding a venture capitalist vs angel investor

    Deciding between angel investors and venture capitalists is a crucial step for your business’s growth. Understanding their differences can help you make the right choice. If you need substantial funding and are open to collaboration and guidance, venture capital might be the path to take. On the other hand, if you’re in the early stages, want more control, and value individual connections, angel investors could be your best bet. Ultimately, the decision hinges on your unique business needs and aspirations. So, assess your situation carefully, weigh the options, and make the choice that aligns best with your vision for success.