Venture Capitalist vs Angel Investor: What's The Difference?

We’ve all heard the saying “you have to spend money to make money,” but a lot of business owners have trouble upfronting large amounts of cash. There is a large conversation around angel investors vs venture capitalists, so it’s important to understand what they both are and know the differences between the two in order to decide which one is the best kind of investor for your business.

Let's take a look at the key differences between what is a venture capitalist and what is an angel investor.

What is a venture capitalist?

Before diving into the venture capital vs angel investing conversation, let's define what is a venture capitalist. A VC is an investor who provides funds for businesses in the early stages of development, in exchange for a share of the company’s profits. Usually, VCs also offer guidance and advice on how to ensure that business runs smoothly and efficiently.

Venture capitalists are distinct from angel investors because they usually seek high-growth opportunities, often taking larger risks than angel investors. Because of this, VCs tend to require more shareholder rights.

The pros and cons of working with a venture capitalist

When deciding to go with a venture capitalist vs an angel investor, it’s essential to weigh the pros and cons. Working with a VC can be a great way to get your business started or take it to the next level, but it can also have its downsides.

Pros

• Access to greater capital than what one could secure through traditional loans or private investors
• Quick decisions based on the venture capitalist’s expertise and intimate knowledge of market opportunities
• Advice and access to other investors in their network that may be interested in investing

Cons

• Venture capitalists will expect some level of control or involvement in key decision-making, so you do have some potential loss of autonomy when compared to raising funds yourself.
• Venture capitalists expect high returns—often much higher than what banks demand

What is an angel investor?

What is angel investing? Angel investing allows individuals to invest their money in startups or new businesses. By investing in the early stages of business development, angel investors are able to take advantage of the potential returns that come with riskier investments.

They usually come together as a network to pool funds for companies or projects they feel have strong potential or provide mentoring and coaching to young entrepreneurs.

What makes an angel investor unique

Angel investors are typically people who are interested in business opportunities and capitalize on industry knowledge, experience, and business networks.

Business angels, as opposed to venture capitalists, provide large monetary investments and take an ownership stake in a business, angel investors tend to invest smaller sums of money to increase their chances of success. Additionally, angel investors often play mentor roles for startups that seek valuable advice rather than strictly financial outlooks. They also offer invaluable business contacts with beneficial networking opportunities and referrals.

The pros and cons of working with an angel investor

Working with an angel investor can be a great way to gain secure funding for a new business venture, but it’s important to understand the pros and cons before you decide if it’s the right direction.

Pros

• Access to more resources (including financial capital) than if you were going solo on your business endeavor
• Angel investors may also provide greater expertise and occasional mentoring.

Con

• Many angel investors will require significant equity stakes in exchange for their investment.
• Most angels require regular updates on financial performance, which could be burdensome depending on the size of your business.

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Understanding the difference between venture capital and angel investors is critical for finding the right type of investors for your business. It’s also important to not that venture capitalists and angel investors aren’t always the best option for small businesses. In fact, a loan might be the better option for small and medium-sized businesses.

Get a flexible loan for your business

Venture capitalists and angel investors may require small business owners to give up large portions of ownership over their businesses and meet reporting requirements that they likely don’t have the capacity to meet. That’s why we started Boopos.

Boopos offers streamlined, non-dilutive business acquisition loans for small and medium-sized online businesses. Our loan options don’t require personal guarantees. And we work with you every step of the way without taking ownership of your business. Contact us to explore your loan options today!

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