Venture Capitalist Vs Angel Investor: What is the Difference?

Last updated: August 15, 2022

Startups need money and resources to grow and expand. Without enough capital, it’s hard for startups to develop products, research markets, and hire new team members. Fortunately, venture capital injects funds into startups and small businesses that have high growth potential.

Therefore, raising money through venture capital will keep a company afloat and help it expand. Furthermore, venture capital doesn’t have to be money. Venture capitalists will also provide managerial assistance, technology, and other non-financial assets.

Find out more about venture capital and how it helps startups below.

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    What is Venture Capital?

    Venture capital (VC) is an investment fund that’s managed by an investment firm. The firm generates a pool of revenue and invests in startups for periods of 8 to 12 years. With venture capital, the goal is to purchase a stake in the company and profit after the company grows.

    Venture capital is also used in other ways. While it’s effective for helping new startups, venture capital is also used during later funding stages (like Series A or Series B) to help firms expand. Venture capital is used during later stages because more money is raised through venture capitalists than angel investors.

    When do Startups Need Venture Capital?

    Venture capital is not necessary for the early rounds of funding, like pre-seed and seed rounds. This is because venture capitalists shy away from companies that don’t show evidence of growth. Venture capitalists want to help companies expand for a percentage of the profits and many firms plan to exist within a set period.

    To attract the attention of venture capitalists, your startup needs to be past the pre-seed and seed rounds. Once you enter the Series A and Series B funding rounds, venture capitalists begin to take interest.

    There are some cases where venture capitalists invest in startups early. These situations are rare and most likely to occur when you use a reputable database like AngelMatch.

    What are the Benefits of Venture Capital?

    Venture capital comes with many benefits that you won’t find with angel investors. Furthermore, you don’t always have to pay venture capital back. This is what makes it attractive to startups and other small businesses.

    The benefits of venture capital are listed below.

    • Venture capital is legitimate and regulated
    • No obligations for repaying the investment
    • It’s easier to find venture capitalists than to secure other types of funding
    • Venture capitalists offer knowledge and experience
    • It helps expand companies overseas and into other markets

    What are the Drawbacks of Venture Capital?

    Venture capital is one of the best assets for an expanding startup. That said, it’s not perfect. In fact, you’ll notice a few flaws you find in other fundraising methods.

    These flaws are listed below.

    • Reduced ownership and control over the company
    • Venture capitalists will often redeem investments within a shorter period of 3-5 years, which places financial strain on the startup
    • It takes a long time to secure venture capital funding
    • It’s hard to find venture capitalists without a resource like AngelMatch
    • Venture capitalists will take a long time to process a request and get you an answer

    What are the Most Well-Known Venture Capitalist Firms?

    Several well-known venture capital firms exist. However, some are more prestigious than others. Depending on the startup, these firms will invest generous amounts of capital. Unfortunately, getting in touch with them is challenging, and reaching an agreement is even harder.

    Below are the most reputable and well-known venture capital firms.

    • Accel Partners
    • New Enterprise Associates
    • Andreessen Horowitz
    • Lightspeed Venture Partners
    • Khosla Ventures
    • Index Ventures
    • Benchmark
    • Union Square Ventures
    • Founders Fund
    • Fred Wilson
    • First Round Capital

    Depending on your startup, it’s possible to receive funding from larger firms during the seed round of funding and Series A round of funding. Still, startups in the Series B round of funding are more attractive to venture capitalists.

    What is an Angel Investor?

    An angel investor is someone who invests their money into a new startup or small business. In some cases, angel investors will fund startups by pooling their money together in groups to raise more capital.

    Angel investors differ from venture capitalists because they’re not affiliated with large firms and contribute less money (on average). These investors will fund a startup until it begins to generate revenue without their help. From there, larger investments are sometimes made.

    When do Startups Need Angel Investors?

    Startups need angel investors in the beginning phases of a startup. Many angel investors prefer to invest in startups that are in the seed round of funding. However, some angel investors will invest during the pre-seed rounds.

    Angel investors have less money than venture capitalists (on average) because they’re not affiliated with a firm. Therefore, angel investors want to make the most of their investment by buying in early.

    Unfortunately, angel investors are challenging to find, especially without a network. Fortunately, AngelMatch gives you access to hundreds of reputable angel investors.

    What are the Benefits of Angel Investors?

    Angel investors offer unique benefits you won’t find anywhere else. For example, angel investors are known for making quick decisions and moving faster than venture capital firms.

    We’ll take you through the benefits of angel investors below.

    • Angel investors make quicker decisions than venture capital firms
    • They make it easier to learn about contracts and will provide them for you
    • Payment with interest is not necessary because many angel investors look for equity instead
    • Angel investors are easy to find with the right network
    • When a startup receives funding it intrigues other companies and investors, which leads to more capital
    • Some investors add credibility to a startup
    • Flexible agreements
    • Funding is provided during the pre-seed and seed rounds of funding
    • Less risk-averse

    Overall, angel investors provide capital faster and with less red tape. However, you need to do your due diligence and verify them. That said, angel investors are great for early rounds of funding and supply capital during periods where venture capitalists won’t.

    What are the Drawbacks of Angel Investors?

    Using angel investors is the only option for many startups but it’s not always the best choice. Unfortunately, many risks come with using angel investors.

    We’ll take you through these risks below.

    • Reduced availability and hard to get in touch with
    • Angel investors aren’t always regulated
    • There’s always an option for angel investors to convert debt to equity
    • Angel investors enter investments believing that growth is coming rapidly
    • Roles are unclear and founders might lose control of the company
    • Limited support and guidance outside of financial resources

    Who are the Most Well-Known Angel Investors?

    There are a few people that come to mind when referring to angel investors. These individuals are some of the most well-known investors in the industry, so their reputation isn’t something you need to verify. While they might be harder to connect with, they’ll invest in the right startups.

    Some of the most well-known angel investors are listed below.

    • Jason Calacanis
    • Naval Ravikant
    • Fabrice Grinda
    • Dave Mortin
    • Keith Rabois
    • Dave McClure
    • Mark Cuban
    • Matt Mullenweg
    • Benjamin Ling
    • Ron Conway

    While these are some of the most popular angel investors, they’re not the only ones. Using a network like AngelMatch will help you connect with thousands of angel investors.

    Raise Capital Today

    Raising capital for a startup isn’t easy, especially if you don’t have a lot of money. Furthermore, it’s even harder if you don’t have wealthy friends or family members. In these cases, angel investors and venture capitalists are your only hope. Unfortunately, matching with investors has always been a time-consuming process.

    Luckily, the process doesn’t have to be challenging or time-consuming anymore. AngelMatch makes it easy to match your startup with some of the most well-known angel investors. Plus, finding investors is quick and painless. Give AngelMatch a try and watch your idea come to life.

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