Angel Investors VS Venture Capitalists: 7 Great Differences
Angel Investors VS Venture Capitalists! Which one are better? Who to pitch? These are the questions every initial startup entrepreneur has in his mind! In this blog, we will present a comparison of Angel Investors VS Venture Capitalists. We will also discuss why each of them is better, and why not!
You must have heard about angel investors and venture capitalists if you are looking to start up your business. These are the two most exciting opportunities for investment for any entrepreneur.
What do they have in common Angel Investors VS Venture Capitalists?
Angel Investors and Venture Capitalist are both wealthy investors who fund the startups to meet the financial requirements of businesses.
Angel Investors are individual investors with extra cash to invest in a business. An angel investor can be anyone around your friends, families, acquaintances, colleagues, or community. Whereas a venture capitalist is a firm or a company that has individual venture capitalists. They invest the money of other investors in the high-risk startups with the potential to grow and acquire market share.
Both kinds of investors take a calculated risk and expect a high return against the investment made. Let’s see what the difference is between them and how they are better!
Angel Investors VS Venture Capitalists: 7 Great Differences
One of the main differences about Angel Investors VS Venture Capitalists: Investment
The first difference between angel investors and venture capitalists is the amount of investment. According to some estimates, an average investment made by angel investors is around $200000 to $350000. Whereas a venture capitalist has the potential of investing about 11 to 12 million to scale up your business.
This significant difference clears the purpose of each startup! The venture capitalists are for those startups that include large setups and initial costs for the business and have a massive potential of scaling up. Whereas a smaller business with low set up cost, angel investors can be an excellent option to go!
Return on investment
Another major difference between angel investors and venture capitalists is the rate of return expected by each investor. On average, a venture capitalist expects a return of 35-40% on the investment. The average return on investment expected by the angel investor ranges from 5% to 25%.
Another important difference Angel Investors VS Venture Capitalists: Structure
The difference in working exist! An angel investor is an individual with excess cash looking for an investment opportunity with high return than the traditional investments. In the case of an angel investor, they have personal finance to invest in businesses with high potential t grow. And in return, they ask for an equity stake in the company. The inherent risk of loss is higher, and the investor will never be willing to invest in the startup owners, who are not willing to give a part of his ownership.
Whereas the venture capitalists are not individual investors. Instead, they are the companies providing funding to the different startups ranging from a food startup to a high tech company. Venture capitalists are a group of professional investors who invest in businesses. Their source of capital can be individuals, pension funds and foundations, or corporations. They work as a limited partner when they invest in startups with their funds. They might work as general partners when they closely work in management with entrepreneurs. General partners have the responsibility of managing the resources, fundings, and ensuring that the company is growing in the right direction.
Due Diligence
This has been a long-debated subject in case of the angel investors that either they should do the due diligence of business or not. But, the matter of fact is that most angel investors don’t take part in the appraisal of business performance unless they have all the investment made. But, research studies have shown that a significant improvement in business can be seen if an angel investor spends 20 hours in due diligence.
If a venture capitalist has a fiduciary relationship with the startup, it is recommended to do due diligence. They should spend some time and money in researching their investment prospects.
Motivation of Investment
The motivation of Investing is also a difference in Angel Investors VS Venture Capitalists
The angel investors are mostly up with their investment only. But, they can give you advice if you seek any. They might introduce you to new people or resources, but it is not part of the deal. Hence, it can be said that the involvement of an angel investor depends on the business and his own personal interests.
The venture capitalists, on the contrary, look for strong products with huge selling potential. Not only this, before they invest, but they also make sure that the business has a capable management team and product or service has a competitive edge. They don’t leave you alone on the whole journey. They will provide you a strategic focus, help in senior management, opportunities of large scale expansion, and business guidance through the whole process.
Angel Investors VS Venture Capitalists: Specialization
The angel investors are mostly specialized in financing the startups in their early stages or late technical development or the cost of entering the market. The amounts of investments made by them are usually under one million. Still, they are enough to make the difference for a startup that has yet to start.
On the other hand, venture capitalists are up to invest in early-stage investment as well as developed companies. Their investment focus depends on the industry they work in. Either it is a startup with compelling promises and potential to grow or a developed business with a proven track of success and growth, venture capital will be keen to invest in such an undertaking.
Angel Investors VS Venture Capitalists: How to pitch?
No matter if you are pitching a venture capitalist or angel investor, you need to perfect your investment pitch. Be knowledgeable about your industry and your own business.
You have to research your venture capitalist or angel investor before you are actually on the table with them. During your meeting, show your business plan, financial projections, marketing campaigns, and financial statements. Also, show them your marketing research and analysis.
You should take enough time to create a compelling pitch according to the tailored needs of your startup.
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