Angel versus Venture Capital

Angel versus Venture Capital

Whether you’re looking for investment as an entrepreneur or you’re looking to invest in a startup, you may be wondering which type of investor you need. There are two main type of investors – angel and venture capitalists – but what exactly does each mean and which one is right for you?

We take a look at the pros and cons of both to help you decide:

WHAT IS AN ANGEL INVESTOR?

Angel investors tend to be individuals, or groups of individuals banding together, who choose to invest their own money into a business. Angels generally invest less money than venture capitalist – usually £1 million or less. However some angels are willing to go higher, but usually not more than £3 million.

Often, these type of investors are entrepreneurs themselves or “retired” entrepreneurs who have a lot of experience with starting, running and growing a business. The reason they invest in a business is that they see potential and want to help, not only fund it, but also provide advice to get the startup growing.

The degree of involvement angels expect to have in your business can vary depending on the investor and what you as the company owner wants. Some assume they’ll be actively involved, while others prefer a hands­off approach. In either case, find one who will help you benefit from their advice and experience, but also works well with your company structure.

And lastly, angels are looking to make money from their investments, and expect a high rate of return. However, in addition to looking at your numbers, they are more likely than VCs to be persuaded by your commitment to your business, or the simple desire to help your company succeed.

WHAT IS A VENTURE CAPITALIST?

In comparison to angel investors, venture capitalists are institutional investors. They manage other people’s money and invest it into business ventures. VCs are responsible to the clients whose money they’re managing – not to themselves.

Because they are dealing with money from many investors, VCs can make larger investments than angels. If you are looking for £3 million or more, getting this amount from an angel investor will be much more difficult than getting it from a VC.

VCs are also in a better position to provide multiple rounds of funding as your company grows. If you know you’ll need more than one round, creating relationships with VCs can be very valuable.

In terms of their direct involvement in your startup, VCs always want to put their own management team in place, and you will need to give up a greater degree of control than you might with an angel investor. VCs often think bigger than angels and if your business has the potential to scale huge, and you can prove it, pitch to VCs first.

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