Angel investors and venture capitalists are two of the most common albeit alternative source of fundings. Apart from bank loans, government grants, and public stock offering, angel investment and venture capital are a viable funding source for startup business organisations and budding entrepreneurs that depend heavily on financial resource and backing to become fully operational.
Similarities between angel investors and venture capitalists
There are similarities between angel investors and venture capitalists. First, both are alternative source of funding. Entrepreneurs and inventors who want to finance their businesses or ideas could resort to these two investors instead of going through the more tedious process of securing bank loans.
Another similarity between angel investment and venture capital is that these two cater mostly to startup businesses with innovative and game-changing ideas. Most of the businesses funded by angel investors and venture capitalists are related to science and technologies.
A systematic or step-by-step investment cycle is another similarity shared by angel investors and venture capitalists. Both alternative source of funding usually start off with a capital infusion and ends the investment cycle with business exit.
Differences between angel investors and venture capitalists
Nonetheless, there is a stark difference between angel investors and venture capitalists. For business ventures that do not require large funding, angel investors are a better alternative because the entire process of securing funding is considerably easier and more personal.
However, another difference between angel investment and venture capital is that the former tends to have limited financial resources. Venture capitalists have an established asset and the overall business operation of a venture capital centres primarily on investing. In other words, venture capitalists are a more viable alternative to bank loans and other traditional investments than angel investors.
It is also worth mentioning that because venture capitalists are actual business organisations, they operate in a more formalised, regulated, and systematised way. This is a critical difference between angel investment and venture capital. Note that some angel investors are unaccredited investors and most of them functions as individuals.
Furthermore, information or details about individual and organised angel investors are not readily available. This means that unlike venture capitalists, not much is known about their investment and operational activities.
Angel investment versus venture capital: A comparison
The aforementioned comparison between angel investors and venture capitalists brings forth pros and cons—especially from the standpoint of entrepreneurs or startup business organisations. Take note that both alternative source of funding remain advantageous because they are willing to finance high-risk ventures without the need for assets or any collateral assets that are usually required by banks. This is the most noteworthy advantage shared by both funding source.
Another similar advantage is that both angel investors and venture capitalists are predisposed to offer their business expertise toward those businesses in which they have vested interest. This speaks of the fact that budding entrepreneurs and emerging business organisation can receive proper managerial guidance from experienced investors.
But because angel investors have limited financial capacity, they may not be able to fully finance the capital requirements of an emerging business. Again, venture capitalists are more viable alternative in this regard.
In conclusion, it is important to take note of the fact that angel investors and venture capitalist remain different in considerations of their varied business interests, focus, and penchants. Angel investors tend to operate as pure and personal investors. They simply are people or groups of people who want to grow their wealth further while at the same time, do something productive from their unused asset. On the other hand, venture capitalists are formal and organised businesses. They are companies with the prime intent of making profits by investing on potential business ventures.