Creating a startup can be quite daunting to anyone who wishes to build a profitable enterprise. Additionally, there is a lot to be considered to ensure that a business becomes and continues to be successful.

Some entrepreneurs have enough capital to navigate through the changes and the challenges that may come their way in the business world. However, others will need some extra help to turn their business ideas into a reality. The process of coming up with a financing option for your company may be in the form of an angel investor or a venture capitalist.

Each funding option can support your business. However, each of these two options varies in a number of things. To help you decide on which funding option would best suit your business, we will be discussing the difference between Angel Investors vs Venture Capitalists.

Funding

Both angel investors and venture capitalists utilize their funds to invest in a business. They also make a thorough calculation of the possible risks and profits any potential business may bring to them. Each of these funding options will make careful decisions to have a return on investment from successful business ventures.

Although, the difference between the source of their funding dramatically varies from one another. In terms of the angel investor, an accredited investor will use their money to invest in small businesses. In the United States, at a minimum, they are required to have a net worth amounting to $1 million. Aside from that, they should also have an annual income of $200,000 to be accredited as an investor.

On the other hand, venture capitalists can either be a person or a firm that could invest in a small business. Generally speaking, those involved in venture capitalism pool money from different investment companies. Their investment funds may come from other investment companies, pension funds, or giant corporations. In its most basic sense, they don’t use any of their personal assets to make an investment when it comes to venture capitalists.

Process of Investing

Choosing to whom they should invest emphasizes how different angel investors are to venture capitalists. Considering that the money invested by the venture capitalists comes from various individuals, they are more careful in choosing the business to put their money on. Typically, companies that had established a name for themselves are considered by the venture capitalists.

For angel investors, they tend to help businesses that are in their early stages. Since angel investors are individuals, they would usually choose enterprises where they are interested and show promising potential for a return on investment.

In a nutshell, angel investors are willing to take more risks as opposed to venturing capitalists. Although, when a company has proven its ability to gain profit, it can seek additional support by pitching promising ideas to a venture capitalist.

What makes Peak different? As a VC we invest in early-stage companies.

Amount Invested

As a business owner, you will most likely look for an investor that will provide you with more capital to work with. When comparing Angel Investors vs Venture Capitalists, venture capitalists win by a landslide. Remember, the amount venture capitalists invest comes from a pooled amount. Having a pooled amount as a source of investment means there is more money to spare.

When venture capitalists invest, they will provide as much support they could give. The amount venture capitalists provide a business that had shown great potential could be more than $10 million on average. On the contrary, angel investors though they are risk-takers, will still ensure that they take calculated risks. Usually, they would only invest a little over $300,000. However, this does not discount the fact of how important it is for any business idea to have the support it needs in its initial stages.

In terms of their return on investment, naturally, venture capitalists will expect a higher percentage ranging from 25% up to 35%. In comparison, angel investors will want a return that may range between 20% up to 25%.

Related article: What is an LP in Venture Capital?

Getting Investors

Earning an investor’s trust, whether it is an angel investor or a venture capitalist, an entrepreneur must come prepared. It is your responsibility as a potential business owner to ensure that whatever business you hope to create will be profitable. More than that, your interests must also be aligned to the interest of your investors to cultivate a good business relationship.

If you are looking for funding, angel investors can provide you with the support you need to take the first few steps. On the other side of the spectrum, gaining the trust of a venture capitalist such as Peak can help you ensure that your business becomes even more profitable than when it started and have sustainable growth in the succeeding years.

Deutsch Svenska Norsk Dansk Suomalainen