Venture capitalists and angel investors differ in several ways. If you think they're just the same type of people writing checks, you're mistaken. They have distinct roles and responsibilities and the types of deals they play in. So how do you know if you should be looking for venture capitalists or angel investors?
What are Venture Capitalists?
The venture capitalist is the person or firm which invests money into the startups. Venture capitalists do not use their own money in business. Instead, they use money from investment funds and wealthy individuals, they call Limited Partners (LPs).
Venture capitalists are known as"smart money" because they have a reputation for being very selective about which companies they invest in. They usually invest in companies that have already raised significant seed capital and have proven themselves to some level.
What is angel investing?
Angel investing is when an individual or group invests their own money in a high-risk/ high-reward startup. These investors tend to help startups get off the ground rather than make considerable financial scaling.
Angel investors typically invest between $25,000 and $1 million in a company. They'reoften looking for something more intangible-like an exciting idea or an innovative product they can be part of helping develop into something great! They help startups get off the ground by providing funding and mentorship, and they receive equity in return.
Venture capitalists vs. Angel investors
Angel investors are typically more willing to invest small amounts of money in businesses than venture capitalists. This is because they're looking for a different kind of investment than venture capitalists- they're interested in helping a business grow rather than taking it over completely. They also tend to ask for less equity in return.
Venture capitalists are interested in investing more significant sums of money into companies that have already proven themselves and are either ready to scale or well on their way. They want a more substantial return on investment, so they're usually looking for businesses with solid growth potential and established revenue streams.
Angel investors are more likely to fund younger, less established businesses than venture capitalists, but they also spend more time working with those businesses and mentoring them.
The average angel investment is $250,000, and the most common range is between $50,000 and $1 million. In contrast, venture capitalists typically invest more considerable sums of money:$2-$100 million on average.
An angel investor may only want to own 5 to 20% of a business, whereas a venture capitalist might ask for 20%-30% ownership to fund the company's growth.
Angel investors fund younger businesses than venture capitalists-typically those that have been around for fewer than five years or are still in the startup phase. Venture capitalists generally prefer more established companies that have been about two years or longer and can show they have a clear path toward scaling.
While both types of investors look for a return on their investment (ROI), angels spend more time working with business owners to help them succeed.
Pitching to angel investors and venture capitalists
When it comes to pitching your startup to angel investors or VCs, there are a few things that you should keep in mind.
- Ensure a clear vision of your company and what it stands for.
- Ensure you know who your target audience is and how best to reach them.
- Make sure that you know precisely what problem your company will solve for these people-and how big of an impact it will have.
- Be sure that the benefits of your product or service outweigh the costs for them (in both time and money).
Angels tend to be more influenced by the team, while venture capitalists are more concerned about the business'soutcomes like financials, market share projections, etc.
Venture capital firms generally rely on a straightforward evaluation process, which takes place over a few clear steps. Angel groups are more decentralized, connecting wealthy individuals with investment opportunities.
Angel investors want something more personal that makes them feel like they're getting to know YOU! So when creating your pitch deck, focus on telling stories about who you are as an individual rather than on all the nitty-gritty details about how much money has been raised so far or what kind of revenue projections are expected.
But for both angel and venture capital, you'llneed to make a compelling pitch. Entrepreneurs who've already raised capital can help you make the best presentation to investors.
If you want to succeed in the world of startups, you must connect with the right people. Knowing who to go to for startup funding help is essential. VC investors are best for a later-stage startup, but angel investors can be a crucial stepping stone on the way there.
Figuring out who will be honest with you, who will consider your interests, and who has a vested interest in seeing your venture succeed is just as important as knowing where and when to seek help.
