Venture Capital Vs Angel Investors: Which is better?

An easy guide to understanding the difference between Venture Capital vs Angel Investors.

The funding process of every startup remains the most critical phase of growth and implementation. You are battling between numerous options of raising funds for your business. From applying for loans to seeking grants, the goal is to raise enough capital at a lower risk expense.

To help you achieve the best for your startup, we will help you understand the differences between Venture Capital vs Angel Investors and which of them is a better option for your business.

To avoid the rigorous process and legal steps involved in startup funding, a lot of entrepreneurs resort to bootstrapping their businesses.

Getting funds from family and friends, or the crowdfunding process looks like a better process. Banks or small business loans are not also the best ideas to get startup funding. With an angel investor or venture capital, you don’t need collateral to receive funds, there are no limitations to how much you can raise, and there is risk management assurance.

But when this doesn’t look attainable, what are your financing options; Venture Capital or Angel Investors?

However, you need a substantial level of understanding of these financing options to cut a clear comparison between Venture Capital vs Angel Investors and which is better.

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Who is an Angel Investor?

Angel investors are a selective class of investors that provide funding or a startup, in exchange for equity. Sometimes, their investments come in the form of convertible debt. Startups pass through different funding stages; seed stage, initial public offering (IPO), series A, and venture round. Because of the risk involved in losing your startup to a venture capitalist during IPO, most entrepreneurs prefer angel investors. The Securities Exchange Commission (SEC) requires that investors are usually accredited.

However, not all angel investors are accredited. Instead of the accreditation process, a lot of Angel investors form an angel investor group or network where they can carry out equity crowdfunding and share their investment capital.

This group of wealthy men gets to decide which startup is worth investing and they collectively fund the process.

However, angel investors are usually preferred by most entrepreneurs because they can invest in businesses even when other investors are backing off. Angel investors for startups are usually rich individuals with an in-depth knowledge of how to run a business. Aside from the possibility of getting a fundraise without accumulating debt, an angel investor is ready to throw in some business knowledge to see that your startup grows.

Who is a Venture capitalist?

Venture Capitalists (VCs) also offer huge funding for startups in exchange for equity, but in this case, they exert greater control on your business. While it is inarguable to conclude that angel investors do not demand a stake in your startup, but because of the huge venture capital

The fund, you might lose total ownership of your firm. This does not paint Venture Capitalists in a bad light. VCs help in strategizing your startups’ focus, helping your build a superb management team that ensures that the scalability of your business idea.

Venture Capitalists are usually part of an organization. So you are sure of having a collaborative move with another firm’s support. This is unlike angel investors that are individual funds. Before VCs decide to pitch their tent with you, they have done their due diligence and understood that your business idea or startup has an unfair competitive advantage.

Compared to angel investors that are a “one-man show”, venture capitalists provide you with the wealth of knowledge of an established team. You do not stand the chance to assess a large volume of venture capital funds, but they can also link you up with innovative business leads. This gives you a launchpad to grow.

Venture Capital vs Angel Investors: PROS AND CONS

Venture Capital PROS

 

  1. Enough Funding
  2. Quick business growth and scalable options
  3. Business Connection with top-tier leaders
  4. You are not accumulating debts. You own the venture Capital fund

Venture Capital: CONS

 

  1. You are sacrificing a higher percentage of your business ownership
  2. The legal prices might become bulky to handle
  3. Getting a venture capitalist that is ready to throw in funds is a difficult process
  4. There is a need for a structured management team
  5. Securing a venture capitalist takes a more strenuous process because an intensive screening process is part of the requirement.

Angel Investors: PROS

 

  1. Angel Investors bear the risk of investment
  2. The money is yours
  3. You tap into the knowledge of the angel investors as they are willing to guide you

Angel Investors: CONS

 

  1. An angel investor could take a greater percentage of your ownership
  2. The money is yours to keep, but they have a share in your future earnings and the startups’ gains.

What is the difference between Venture capitalists and Angel Investors?

 

Venture Capitalist Angel Investors
A Venture capitalist is a collective arm of a firm. Angel Investors are independent rich men.
Venture capitalists require that your startup has a strong management team with a competitive demand. Angel investors are willing to invest in any realist idea that looks innovative.
Venture capitalists take a longer process to approve funding for a startup and they prefer mature businesses to startups. Angel Investors are good at funding startups.
Due diligence is required. Less diligence is required and it takes a faster process to release funds.

FAQS

Is Venture Capital a good investment?

Yes. Venture Capital is a good investment. It broadly depends on your business needs and the amount of funding that you need. Venture capital is a good idea for receiving large sums that will provide a base for capital growth.

Do Angel Investors get equity?

Yes. Angel Investors get equity. Their investment and funding in your startup and business come at the expense of the equity and percentile share of ownership of your business.

Can an angel investor steal my idea?

This may sound ridiculous, but angel investors cannot and will not steal your ideas. Most of the angel investors that you will come across are accredited investors. They are there to support and not to steal your ideas and become the big competitor. To stand on the safer side, you can get some copyright or licensing, patent laws for your creative ideas.

DO VC firms steal ideas?

No. VC firms do not steal ideas. VC firms are careful about their reputation. Battling you in court over intellectual theft is the least risk that they will love to take.

CONCLUSION

Your business venture should help you decide the type of investor that you need. You might have plans to launch a huge cryptocurrency or DAO project, or you just want to launch a mini social startup, your needs should guide you to make the best choice.

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