To know and understand the difference between a Venture capital investment and an angel investment, it is important to know the basic concept behind the two variants. An angel investor is a person who offers capital or investment for start-ups in businesses in exchange for ownership equity or a convertible debt. Angel investors around the world organize themselves into groups or angel networks to research and often share the research and pool the investment capital. There are over 4000 to 6000 angel investors in the UK who have an average investment size of over 42000 euro per investment.
A venture capitalist is a person who makes arrangements for investments in business ventures that may or may not be start-ups. The venture capitalist invests in a company for its development in exchange for a better-than-average return. A venture capitalist is an expert investor who invests only after studying the market. Therefore, experts in the field of management, finance and business are the ones that are given positions of a venture capitalist. Venture capitalists in the UK generally look up for a turnover of at least 25 percent and up.
Venture capital investment vs angel investment
There is a substantive amount of difference between both the kinds of risk capital investments. To those who do not wish to opt for venture capital investment can look out for angel investment, which is another alternative to capital investment. Some of the areas in which angel investors differ from venture capitalists are:
In the arena of the total Amount Raised
Angel investment may vary in size depending on the company and the investment group but are usually smaller. They provide investment or funding for small ventures. While on the other side, the venture capitalist investment would involve venture capitalists who would prefer investing $2 million at the minimum. This is because they are certain to get a 40 percent return on $2 million investment, which is more preferable than a 100% return on $50,000 investment. Venture capitalists are usually large in number and they have more money than the angel investors do especially because venture capitalists are found in groups that comprise of members who pool in money to build massive funds. The angel investors can be either a group of very few people or lone investors in search of opportunities to grow their money.
In the arena of Professional and Non-Professional
Venture capitalists associate themselves to a particular firm and the process by which individuals are hired to these firms is typically arduous, which makes the venture capitalists much sought out in the market. This also makes them one of the most professional investors that strive to meet the stringent criteria of the venture firm. However, it does not mean that angel investors are not professional at their work. While the prime motive of the venture capitalists is to search for potential investments, the angel investors can themselves be business owners or professionals following another industry or working as part-time angel investors looking for potential places to invest in to boost up their savings.
In the arena of other people’s money Vs own money
Venture capitalists mostly manage the fund perhaps producing a more risky investment. A big chunk of the money that the venture capitalists invest is derived from corporations, pension funds, wealthy and prosperous individuals as well as families. The angel investors invest the money that is their own; money that they have earned and saved over a long time. Therefore, the angel investors do not have a strict criterion for investment, like, a certain amount or percentage of return in exchange of the investment. They can invest how much ever they want and in businesses, those usually do not have a higher amount of returns but can help a particular community or work for a certain social cause.
In the arena of Board Seats
Venture capitalists always require a confirmed seat on your company’s board of director position so they can help you with the development of your company. They are completely involved in the various investments that they make. Angel investors might or might not want to be a part of your business depending on if they want to add value to the development of your business by contributing their human capital. Angel investors are not likely to become board members at the portfolio company especially because they work at their own free will.
To put it in a nutshell, venture capital investment and angel investment is different in the below-mentioned ways. Angel investments charter the importance of the existence of the following steps:
- There has to be an access to large amounts of money to fund the various complex activities of a business.
- There has to be access to very senior executives. For instance, an experienced head of the manufacturing unit.
- There has to be access to early adopter customers
- There should be availability of intense hands-on expert guidance right from the beginning of the company in order to avoid serious mistakes
The venture capitalists have chartered a much bigger arena of matters that must be handled professionally while taking care of investments. The following ideas make them different from the angel investors:
- Raise large amounts of capital from investors who run big institutions
- Gather a set of experienced partners or individuals like the CEOs of companies et cetera who can provide hand-on expertise in building the product followed by the company.
- Arrange for evaluating each deal with close attention with the help of extensive due diligence as well as broad partner consensus.
- Employ a space for strong governance in order to protect the large amount of capital that is deployed in each deal. This also included board seats as well as complex deal terms, which help in controlling financings.
- Arrange space for managing own resources in an effective manner by measuring and keeping a track of the amount of capital, number of partners or maximum number of board seats per partner so as to derive a minimum amount of capital that is needed to invest in each deal.