What is the Difference between a Venture Capitalist and an Angel Investor?

The main similarities between a venture capitalist and an angel investor are that they both invest in businesses. They also take partial control of your business and are involved in some degree with the running of your business. So how do you know which one is right for you? Here are some fundamental differences that will help you decide.

Funds Source – Venture capitalists pool their money from many different sources, both corporate and private. Angel investors are successful entrepreneurs who work alone or in groups to invest their own money.

Investment Amount – Venture capitalists usually invest anywhere from $500,000 U.S. to $10 Million U.S. Angel Investors typically invest anywhere from $25,000 U.S. to $1 Million U.S.

Development Stage: Venture capitalists normally invest in companies that are well established and already producing a profit. Angel investors look for companies in the early stage of development. It may even be just at the idea stage.

Industry Specific: Venture capitalists prefer to invest in high-growth industries, like technology or innovation. Angel investors look businesses within their own area of expertise.

Obtaining Financing: Getting funds from a venture capitalist can be a lengthy process and requires meeting strict criteria. Angel investors

are generally easier to find and negotiate with.

Long Term Cost: Both venture capitalists and angel investors will expect a return on their investment. Usually, the former will expect a higher rate of return.

It’s important that you be realistic in your goals. If you are just starting your business, angel financing may be your best bet. If your business is established with a fairly good record, or it offers an exceptional opportunity, a venture capitalist may be for you. Do your homework, and research all of your options. Meet with several investors from both groups and find out what each of their criteria are for funding. Find out how much of a return they are expecting, and how involved they want to be in the day to day operations. Choose someone who you will feel comfortable working with for the next several years.