So, you need funds for your business. But where is the best place to get them? There are a variety of methods to attract capital depending on the nature of a company and its needs. But when you do your research, one common debate for the ideal financing option will always pop up: angel investors vs. venture capitalists.
To make the best selection for your company’s funding, you’ll need to understand how these two ways of financing compare with each other.
Differences Between Angel Investors and Venture Capitalists
Both angel investors and venture capitalists want to take a risk in any project of they believe has the potential to make a satisfactory return on investment (ROI). But how exactly do they differ?
A key difference between the two is how they get their money to finance others. Angel investors are accredited investors who invest in small businesses using their own money.
On the other hand, venture capitalists are individuals or organizations that invest with money gathered from large corporations, pension funds, or other investment firms.
Many angel investors come in the form of family and friends. That is why they often focus more on the steady growth of the business instead of instant profit. Consequently, their terms may be more favorable than those of a venture capitalist.
Both venture capitalists and angel investors demand business stock and/or control over how your company operates. Aside from seeking business equity, both venture capitalists and angel investors want some sort of control over the whole operation.
Most angel investors take the role of mentors by offering tried and true strategies. After investing, venture capitalists may request that you form a Board of Directors and grant them a seat on it.
These roles give them more insurance of a high ROI. It’s up to you as the business owner to decide whether you need a trustworthy guide or a straightforward board member.
Angel investors vs venture capitalists‘ ways of investing are different. Angel investors are more inclined to invest in enterprises that are just getting started, whereas venture capitalists are more likely to invest in well-established companies.
There’s also a big difference in the amount they put into an investment. Because average angel investors get money from their own pockets, they tend to have lesser budgets than venture capitalists.
If you are just starting out, an angel investor may be able to offer you enough funds. But when you’re established and ready to develop more, pitching to a venture capitalist is a wise move.