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Angels Vs. Ventures- What’s the Difference?

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You’re a small business owner and you need money. You’re not alone. At some point nearly all small businesses need some sort of funding. Many simply apply for a business loan at a bank but some need even more than that. If you are thinking of soliciting large scale funding for your business, you may need the help of an Angel Investor or venture capital firm. Before you contact these people, make sure you know the difference between the two.

Angel Investors

Possibly the most important difference between angel investors and Venture Capitalists is at what stage of your development they want to be involved. Angel investors normally invest in early stage businesses in amounts ranging from $25,000 to $1 million. Here are some other facts about Angel Investors:

  • Angel investors are individuals, not firms. Sometimes they partner with other angel investors but normally act alone.
  • Have industry knowledge of the startups they are interested in investing in.
  • Short term investors- They help to get a startup off the ground, make a profit and exit the investment within 3-5 years.
  • Invest locally. Most Angel Investors prefer to invest within four hours of their location.
  • They will want a 10% to 30% equity percentage in your company.
  • Anonymity- They don’t advertise. They prefer referrals from friends and family instead of “cold-calling” entrepreneurs.

If you are an early stage company with a track record of success in the business field, an Angel Investor may be right for you. Remember, their level of funding is relatively small so if you’re looking to become the next large cap. corporation, you don’t want an Angel Investor.

Venture Capital

Venture Capitalists tend to fund later stage companies with higher amounts of funding and resources in exchange for a larger stake in the company. Venture Capitalists could ask for 20% of your company at a minimum with some wanting as much as 50% so before going the route of venture capital, make sure to have legal counsel as well as other experts as advisors. Here are some other facts about Venture Capitalists:

  • Funding starts at $500,000 and goes up from there. The ceiling of funding is unlimited but with more funding comes tougher terms.
  • They will invest in anything. Because of their large research staff, they feel confident investing in industries where they have no first-hand knowledge.
  • Global investors- they have a network of associates that allow them to invest anywhere in the world.
  • They like to invest in products near completion and ready to enter the market. There are also early stage venture capitalists (called seed investors) but most prefer later stage companies.
  • Slow and methodical-  If you need money fast, you don’t want to look to venture capital. Their research process is slow and it will take a large amount of time for the process to be completed.

Remember that the lists above are only guidelines of industry standards. There are numerous types of angel investors or venture capitalists who do not fit the industry standard. Just as they will do thorough research of your company, you must do the same research of their company.