The terms “venture capitalists” and “angel investors” are often used interchangeably when referring to investors who purchase an ownership stake in businesses with high growth potential. Many business owners assume they are the same. While they both offer a source of equity financing for businesses, however, venture capitalists and angel investors differ in several ways.
Venture Capitalists vs Angel Investors: What’s the Difference?
A venture capitalist is an investor who specializes in funding startups. They typically invest money in startups using the “pooled” money of a fund. Venture capitalists manage funds. Individual investors can transfer money into these funds, and if the venture capitalist is successful, they will be rewarded with a positive return.
What Is an Angel Investor?
An angel investor is an investor who seeks to purchase an ownership stake in startups and other early-stage businesses. They typically consist of individuals with a high net worth. Like their venture capitalist counterparts, angel investors target startups. They will purchase an ownership stake in a startup, hoping that the startup will grow and eventually become profitable.
Differences Between Venture Capitalists and Angel Investors
Venture capitalists and angel investors differ in several ways. One of the main differences between them is that venture capitalists use the money of a fund, whereas angel investors typically use their own money.
Most venture capitalists operate a fund. Individual investors can buy shares of the fund. If the fund is successful, the value of their shares will increase. Angel investors, on the other hand, don’t operate a fund. They still invest in startups, but angel investors tend to use their own money rather than a fund.
Angel investors are also more flexible than venture capitalists. Many venture capitalists have specific requirements when choosing businesses in which to invest. Unless a business fits these requirements, they won’t invest in it. Angel investors, in comparison, are more flexible. They may invest in businesses in a wide variety of industries, and some angel investors may target established businesses rather than focusing exclusively on startups.
Angel investors bring more to the table than venture capitalists. In addition to money, they offer advice and expertise. Angel investors want the startups in which they invest to succeed. After all, success translates into a positive, higher return on investment. Therefore, most angel investors will work closely with the business owners by providing them with tools, resources and advice. Some venture capitalists may offer advice as well, but angel investors take a more hands-on approach toward their investments.
This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.