Last Updated on April 14, 2021 by John Fischer
A lot of businesses need help starting up or taking their operations to the next level. Sourcing money from investors is the best way to go about securing your business’s future if you lack personal finances to do so. Today, we will discuss the key differences between two types of investors: venture capitalists and angel investors.
Stage of The Business
Angel investors usually invest their money into startups and or businesses involved in market research and technical development at an early stage. Conversely, venture capitalists mostly commit to emerging businesses that have established themselves on all fours, helping them grow by assisting them through mergers or IPOs. Very rarely do venture capitalists invest in a startup, mostly if they know the person who founded the startup has been successful in the past and the product shows promise.
The extent of the investment is one of the biggest differences between angel investors and venture capitalists. An individual angel investor would typically invest only $25,000-100,000 of their money into a business. On the other hand, venture capital organizations have way more money to invest as they pool resources from multiple investors. A standard investment by venture capital firms is in the starting range of $3-5 million and can be a lot higher.
Contribution and Participation
There are major differences in what each type of investor brings to the table in terms of participation and contribution to the business. The level of involvement for angel investors is generally quite low in how the business is run. However, they offer their assistance in contracts and the experience they have acquired over the years. Venture capitalists are on the other end of the scale when it comes to participating in business operations, sometimes even demanding a place on the board of directors.
Duration of Investment
Angel investors are invested in the business for a much shorter period in comparison to venture capitalists. Venture capitalists stay with a company for a minimum of ten years before heading out, whereas angel investors pull out their investment after two to five years.
All the factors addressed above play a role in determining whether you should join hands with an angel investor or venture capitalists. However, most businesses have different needs and circumstances, which must be considered before making the final decision. There are no strict rules as to which type of investment a company should get at any given moment.
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