An angel investor (also known as a private investor, seed investor or angel funder) is a high net worth person who provides financial support to small businesses or entrepreneurs, usually in return for the company's ownership equity. Angel investors are also found amongst the family and friends of an entrepreneur. The funds received by angel investors can be a one-time investment to help the company get off the ground, or a continual contribution to finance and bring the company through its challenging early stages.
A venture capitalist (VC) is a private equity investor offering to fund businesses that show high growth potential in return for an equity interest. It may be financing startup companies or finance to small businesses that want to grow but have little access to equity markets. Venture capitalists are willing to risk investing in these businesses because, if such businesses succeed, they will gain a huge return on their investments.
Difference between Angel investor and Venture Capitalist
“Angel investments are the investments made by high net worth informal investors, while in the case of venture capital, investments are taken by venture capital companies funded by the companies that raise funds from the different institutional investors or individuals.”
1. Meaning
An angel investor (also known as a private investor, seed investor or angel funder) is a high net worth person who provides financial support to small businesses or entrepreneurs, usually in return for the company's ownership equity. Angel investors are also found amongst the family and friends of an entrepreneur. The funds received by angel investors can be a one-time investment to help the company get off the ground, or a continual contribution to finance and bring the company through its challenging early stages.
A venture capitalist (VC) is a private equity investor offering to fund businesses that show high growth potential in return for an equity interest. It may be financing startup companies or finance to small businesses that want to grow but have little access to equity markets. Venture capitalists are willing to risk investing in these businesses because, if such businesses succeed, they will gain a huge return on their investments.
2. Risk Level
The investment made by Angel investors is a highly risky investment as they invest in the early stage of business or to the start-ups, the investment made by them only upon the idea of business. Angel invests in business in return for equity in the business (the portion of ownership).
Whereas Venture capitalist investments are low risk as they invest in an on-going business (established business) which shows high growth in the future. Ventures are a group of investors who pool their investment and invest in growing business.
3. Size of investment
Angel investor is generally single highly net worth investor who invests in the early stage of any business, so their investment size is small in comparison to ventures. In general, the investment size is in between millions.
Whereas ventures are a group of people who make the investment in the growing business, ventures pool their fund together for making the investment in the business. So investment size o venture is more, generally, their investment size is between billions.
4. Duration of investment
Angels are individual investors, to protect from the loss they invest for a short time in business. They contribute for a short period as they see that business is providing the required rate of return on their investment, they withdraw their investment form the business (sell their equity/stake)
Ventures play in long term investment, as they do strategic investment they invest for a long period of time in the business. Ventures invest a huge amount and they don’t go for short duration investment. A venture is a pooled investment, so they invest for a long time with a moderate rate of return.
5. Rate of return
As angel investor is individual person, they invest in the high interest rate and for a short duration. To curb the chance of loss they invest in high-interest rates and for a short time. So, Angels have a high rate of return with high risk.
Whereas ventures do calculate risk investment for a long period in a company/business, they invest in the low-interest rate in a growing business. As venture is a pooled investment so they do investment after risk calculation and at a low-interest rate. Ventures have a low rate of return as compare to angel investors.
6. Business involvement
Angel never gets involved in their investment’s business, they only care about their investment return.
Whereas ventures care about their investment’s business, as ventures are experienced people and they make advice to their invested business and try to sit on the board of the invested company. Ventures make advice/suggestions to their invested business for growth or to get recover from the loss.
7. Type of Investment
Angels make the investment inequity of the business, as they invest for a short period of time, they invest in the company’s equity
Whereas ventures invest in equity or debt of the company, or they may make the investment in a combination of their of. They invest after calculating their risk, so they invest accordingly.
