Home Business Venture Capitalists Vs Angel Investors -Who is better for your business?

Venture Capitalists Vs Angel Investors -Who is better for your business?

by Uneeb Khan

Do you wish to ensure the best-ever financial decision for your business? In this case, it is crucial to understand the core differences between the different types of investors in the venture. While you can consider getting an investment from friends and family, a startup or a newbie company might require additional capital or funding to get their business off the ground. 

Most organizations will consider venture capitalists (VCs) or angel investors as the best alternative sources of funding. However, businesses should be aware of the common differences between the two types of funding options. 

Who is an Angel Investor?

An angel investor offers access to a large cash infusion of their own money to startups that are quite early in the stage of development. In return, angel investors will receive access to convertible debt or equity. 

Most angel investors tend to be accredited. As angel investors are expected to invest their own funds, it is preferred that they fulfill the criteria as set forth by the SEC or Securities & Exchange Commission to be referred to as accredited investors. 

Who is a Venture Capitalist (VC)?

A venture capitalist or VC serves to be an individual or a group of individuals responsible for investing money into high-risk startup organizations. Usually, the overall scope for a startup to grow instantly will offset the risk of failure. Therefore, it helps in incentivizing VCs to ensure relevant investment. 

After a specific period, the VC or Venture Capitalist might consider fully purchasing the company. in the case of an IPO or Initial Public Offering, the VC might think of buying a major portion of its shares.

Alt text: – Difference between Angel Investors and Venture Capitalist

Differences Between a Venture Capitalist and an Angel Investor

As both serve as the most common sources of alternate funding, venture capitalists and angel investors might have specific similarities. However, there is a difference between a venture capitalist and an angel investor. Here are some points to understand while understanding the difference between VC and angel investors:

#An Angel Investor is an Independent Worker, VCs Part of an Organization

Angel investors are also known as business angels. These are regarded as individuals who invest their respective finances in some startup. Angels tend to be rich, in some cases, influential as well. They choose to invest in high-potential startups or organizations in exchange for an equity stake. 

On the other hand, venture capital firms feature a dedicated group of professional investors. Their overall capital is derived from individuals, pension funds, foundations, and corporations. These investors go by the name of limited partners. 

#Both Invest Different Amounts

Whether you wish to reach out to an angel investor or a venture capitalist, you should have a proper idea of how they will be helping you financially. Usually, angels think of investing an amount between $25,000 & $100,000 of their own money. However, they can invest less or more in some cases.

While angel investing is usually a rapid solution, due to its limited financial capacity, angel investors are not always able to finance the full-end capital requirements of a business organization. On the other hand, venture capitalists tend to invest an average amount of $7 million in any organization.

#Different Sets of Motivations and Responsibilities

Angel investors primarily have the role of delivering financial support. While they might offer advice or introduce you to relevant contacts, they are still not obliged to do so. The overall level of involvement of an angel investor will depend on the specific requirements of the company and the inclinations of the angel investor.

A venture capitalist will be in search of a stronger or more reliable product or service holding a relevant competitive advantage and a comprehensive potential market. As venture capitalists get convinced of the reliability and strength of the company, their role is to build successful companies. This is wherein they deliver real value. 

Conclusion

If you are in search of a scalable, flexible, and completely digital process of raising funds, it is recommended to think about the option of revenue-based financing. With this option of raising funds, there is no requirement for equity dilution or any specific guarantee. It is a founder-friendly approach that allows founders to raise funds without diluting equity. Moreover, the repayments take place in the form of a percentage of monthly revenues.

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