There’s a lot of discussion in the start-up community about
the difference between venture capitalists and angel
investors. While the two have many similarities, some key
distinctions can help you decide which route is right for your
business. This blog post will examine those differences and
assist you in making the best decision for your business –
Venture Capitalist vs Angel Investor.
What Is A Venture Capitalist?
A venture capitalist is an institutional investor who provides
capital to startups or small businesses with high growth
potential. They are often the first institutional investors in
a company and play an essential role in its development.
Venture capitalists typically look for businesses with high
growth potential and are willing to take on some risk to see a
more significant return on their investment.
In exchange for their investment, venture capitalists usually
take a significant ownership stake in the companies they
invest in. While investing in early-stage companies always
involves some risk, venture capitalists typically see a high
return on their investment if the company is growing and
becoming successful. As such, VC fund is essential in
financing innovation and economic growth.
What Is An Angel Investor?
An angel investor typically is a high net worth individual or
private investors who provide capital for a startup founder,
usually in exchange for an equity stake in the company. Angel
investors usually have experience in the industry in which the
start-up operates. They may also be friends or family members
of the entrepreneur.
But Angel investors typically invest smaller sums of money
than venture capitalists, but they play an essential role in
the early stages of a company’s development. Many start-ups
rely on angel investors to get off the ground, and these
investments can be crucial to a company’s success.
In recent years, there have been some online platforms that
connect start-ups with potential angel investors; the biggest
of these is AngelMatch. This platform provides a convenient way
for entrepreneurs to pitch their businesses to a large pool of
Differences Between Venture Capitalists And Angel Investors
Both VC funding and angel investing play an important role in
the early stages of a company’s development, but there are
some key differences between the two.
The Nature Of The Investor
Venture capitalists are professional investors who
invest other people’s money in early-stage companies. They
typically work for venture capital firms, companies that raise
money from limited partners (LPs) and invest it in start-ups.
Angel investors are individuals who invest their own
money in early-stage companies. They are often entrepreneurs
themselves or have experience in the industry in which they
The Amount Of Money They Invest
Venture capitalists typically invest larger sums of
money than angel investors for several reasons.
Venture capitalists tend to invest in later-stage
companies that have already proven their business model
and are seeking to scale up.
Venture capitalists typically invest as part of a
syndicate, which allows them to spread the risk across a
portfolio of companies.
This approach has both advantages and disadvantages. On the
one hand, start-up companies that receive funding from a
venture capital fund have access to greater resources, which
can give them a significant competitive advantage.
However, this also means that start-up companies are under
greater pressure to achieve results quickly and may be less
inclined to take risks that could lead to breakthrough
Angel investors often take a more hands-on approach
than venture capitalists, who usually invest their own money.
There are a few reasons why angel investors may be more
inclined to invest less money than venture capitalists.
Angel investors are typically individuals who invest their
own personal funds, whereas VC firms pool money from
multiple investors. This means that angels have less
capital to invest in and must be more selective about the
companies they choose.
Angel investors typically invest early in a company’s
development when the risks are higher. As such, they tend
to be more cautious with their investments, opting to
spread their risk across multiple start-ups rather than
putting all their eggs in one basket.
While this approach has some downsides (e.g., start-ups may
have difficulty raising larger sums of capital down the line),
it does have its advantages.
One key benefit is that angel funding allows startups to
retain greater control over their company. With VC investment
comes VC involvement and input, which can sometimes prove
disruptive or even detrimental to a young company.
By accepting smaller investments from angels instead,
start-ups can avoid this potential pitfall and maintain
greater control over their business.
The Kind Of Company They Invest In
Venture capitalists tend to invest in companies with a
higher potential for growth and scalability and a proven track
record of success.
This has several reasons:
Venture capitalists are often looking for a high return on
their investment, and companies with high growth potential
and scalability are more likely to provide this.
Venture capitalists typically invest more significant sums
of money than angel investors, so they need to be
confident that the business will be able to grow enough to
justify their investment.
Additionally, venture capitalists typically have a more
hands-off approach and leave the day-to-day operations to
the company’s management team. So they need to be
confident that the company is growing without having to
support them every step of the way.
Angel investors usually invest in companies in the
early stages of development with high growth potential. They
tend to be interested in companies with solid management teams
and innovative products or services.
Angel investors usually provide start-ups with seed money to
help them get off the ground. In return, they typically
receive an equity stake in the company. This can benefit
start-ups by giving them the capital they need to get off the
Additionally, angel investors often have extensive networks
and can provide valuable mentorship and advice. As a result,
working with an angel investor can be an excellent way for a
start-up to get the resources it needs to grow and succeed.
The Decision-making Process
The decision-making process for a venture capital firm
is often longer and more bureaucratic than for angel
investment, as a VC firm has to answer its LPs.
Angel investors often can decide faster as they invest
their own money and do not need approval from others.
Both investors play an essential role in start-ups. But to
decide which is better, we must consider why a start-up needs
the capital. Is it for getting started and developing an idea
into a sustainable business, or is money needed to scale and
expand a business?
When more capital is needed to get the feed off the ground,
the start-up needs seed money. So, to decide which investment
is better, we need to clarify another term: the pre-seed
What Are Pre-Seed Investors And Why Are They Important For
Pre-seed investors are early-stage investors who provide
funding to start-ups before they launch their products or
services. This type of funding is important for start-ups
because it allows them to get started and generate revenue.
Pre-seed investors typically invest smaller amounts of money
than other types of investors, but they can be a crucial
source of funding for start-ups.
A pre-seed investor is essential for start-ups for a variety
They can provide the initial funding necessary to get a
new business off the ground. Without seed money, many
founders would never be able to get started.
Seed investors can provide valuable mentorship and
guidance to entrepreneurs. They can help new businesses
navigate the early stages of start-up life and provide
advice on how to scale and grow.
Seed investors can offer valuable connections and
introductions to other investors, customers, and partners.
Their networks can be a powerful resource for new
Seed investors often take an active role in supporting and
promoting their portfolio companies.
They can help build buzz and awareness around a new business,
which can attract additional investment and help a company
scale more quickly.
Thus, seed investors are essential players in the start-up
ecosystem, and their support can be instrumental in helping
new businesses succeed.
Pre-seed funding can either be a venture capital investment or
an angel investor that invests early on in a start-up company,
usually in exchange for equity.
But from their potential benefits, it becomes clear that angel
investors are usually more inclined to invest in early-stage
companies and become their go-to investors for pre-seed money.
Venture Capitalist Vs Angel Investor — When to pitch to each
type of investor
As an entrepreneur or founder, you may be wondering when the
best time is to approach outside investors like an angel
investor or venture capitalist for funding.
The answer, of course, depends on various factors, including
the type of business you have and the stage of development it
is in. Generally speaking, however, there are a few key things
to keep in mind.
First, if your business is still in the early stages of
development, an angel investor may be a better option, as they
tend to be more willing to invest in riskier ventures and can
provide more hands-on support than venture capitalists.
However, a venture capitalist may be a better bet if your
business is further along and you seek a large sum of money.
Keep in mind that they will likely want to see a more detailed
business plan and financial projections before investing, so
ensure you have these ready before approaching them.
Ultimately, the decision of whom to approach for funding
should be based on your specific needs and goals.
AngelMatch is the perfect resource. With over 90,000 angels
and venture capitalists registered on the site, you are sure
to find an investor who is a great fit for your company.
Contact us today to get started and get a deal from accredited
investors for your success!