Both angel investors and venture capitalists are individuals who personally invest money in companies. Both VCs and angels take calculated risks with the hopes of making a healthy return on their investment. So, what’s the main difference between angel investors and venture capitalists? Being able to identify this difference can save your time and possibly help you seek capital funding from the very best company available.
To Understand What Angel Investors Are
VCs are personal investors who typically invest with a business idea or in a specific industry. Typically, VCs will partner with other private sector individuals or institutions to provide capital to new start-ups or existing companies. The primary reason for working with venture capitalists is to provide venture capitalists with a stake in the company.
What Are Venture Capitalists?
A venture capital firm is typically composed of one or more individuals or a group of individuals with entrepreneurial skills. This group of entrepreneurs works together to identify successful products or services and bring that product/service to market. Venture capitalists typically have experience in finance, technology, business operations, sales, marketing, and/or business development.
Why Would I Want To Invest With A Venture Capitalist Firm?
A venture capital firm will provide more stable funding levels than angel investor networks. A venture capital firm will focus on the highest return investments. The capital from venture capitalists tends to be a higher quality investment due to the larger number of high return deals they have made in the past. This focused capital level increases the likelihood of high returns on equity, which results in a higher net present value (NPV).
How Do I Find Reliable Venture Capitalists?
You can find venture capitalists through a variety of sources including Internet advertising, business magazines, newspapers, telephone directories, and referrals. Typically, entrepreneurs begin looking for venture capitalists when they have been brainstorming a new idea for the business. When you are brainstorming, it is important to develop a list of potential funders with whom you wish to discuss your business plan and seek capital financing. While you may be able to identify several funders, do not attempt to choose the first few individuals or companies you come across. Instead, review these names with your attorney and your business adviser to confirm the investment structure, their suitability, and potential risk factors of the startup.
What Should I Look For In A Venture Capitalist Group?
A good fund will be made up of successful entrepreneurs with experience and/or background in the highly competitive markets that are prevalent in today’s small business investment world. Ideally, a member of this group should have significant experience in launching, and growing small businesses as well as entrepreneurial planning. Additionally, there should be at least three or four individuals from the group who have either invested in small businesses themselves or are currently providing investment advice to small businesses. The more venture capitalists you can find who have significant experience and/or success in this industry, the better your odds will be of obtaining startup capital and working with them to grow your business.
How Do I Find Legitimate Venture Capitalists?
There are several ways to partner with an angel investor. Depending on your particular circumstances, one or more of these options may be appropriate. For example, if you are seeking investments to expand into international markets, you may wish to work with an entrepreneur with experience in emerging countries.
The Outline
If you want to partner with an experienced entrepreneur with a proven track record, you may want to work with an angel investor who is also very wealthy. Unfortunately, as we have seen too many times with poorly funded early-stage investments, wealthy investors can easily influence the investing decisions of less sophisticated entrepreneurs without necessarily having any knowledge of what they are investing in. For example, it is not uncommon for wealthy individuals to invest in companies that are structuring to acquire oil extraction rights without first consulting with the less wealthy individual who owns the rights in the oil.
