Angel Investors vs. Venture Capitalist: 7 Main Differences
February 05, 2020
Angel investors and venture capitalists are two of the most common alternative sources of funding. Innovative start-up firms are both addressed by angels and venture capitalist firms, both of them tend to prefer technology and science companies. That said, the disparities between venture capitalists and investors are quite substantial. Angel investors are rich persons who invest their own money in companies. Venture capitalists are employees of risk capital companies who invest other persons’ money in companies.
7 Main Differences between Angel Investors vs. Venture Capitalist
- An angel investor operates independently, while a venture capitalist belongs to a company or a firm.
- Angels typically invest between $25,000 and $100,000, although they sometimes invest more or less. If angels join a group, the average amount could be over $750,000. In contrast, the average investment in a company of venture capitalists is $7 million.
- Angels investors offer mainly financial assistance, whereas a venture capitalist seeks a strong, competitive product or service, a talented management team and a wide-ranging market potential.
- Angel investors are specialized in early-stage companies, finance the technical development at the late stage and early market entry. On the other hand, venture capitalists, depending on the venture capital business, participate in early-stage firms and more mature businesses. A venture capitalist will want to invest in a start-up that shows an attractive promise and a lot of growth potentials.
- Due diligence is an environment that has given angel investors much controversy over the years. Many angels do almost no work, and because all wealth is their own, they're not really obligated to do so. Capitalists must do more due diligence since they keep their restricted partners' fiduciary responsibility.
- Angels are different than VCs, which are less diverse than Wall Street, and mostly focused on Silicon Valley.
- VCs will crush your company more likely. Since VCs also take a seat for the board of directors for your firm – Angels usually do not and should not – this reinforces their ability to influence the startup.