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 financing for 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 made by venture capital companies funded by companies that raise funds from 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 financing 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 highly risky, as they invest in the early stage of business or in start-ups; their investment is made by them only on the idea of the business. Angel invests in a business in return for equity in the business (the portion of ownership).
Whereas Venture capitalist investments are low risk as they invest in an ongoing business (established business) that shows high growth in the future. Ventures are a group of investors who pool their investment and invest in growing businesses.
3. Size of investment
An angel investor is generally a single, highly net-worth investor who invests in the early stage of any business, so their investment size is small in comparison to venture capital. In general, the investment size is between millions.
Whereas ventures are a group of people who make the investment in the growing business, venture pools pool their funds together to make the investment in the business. So the investment size of a venture is larger, generally, their investment size is between billions.
4. Duration of investment
Angels are individual investors; to protect themselves from loss, they invest for a short time in a business. They contribute for a short period as they see that the business is providing the required rate of return on their investment, and they withdraw their investment from 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 investments. A venture is a pooled investment, so it invests for a long time with a moderate rate of return.
5. Rate of return
As an angel investor is person, they invest in high-interest-rate and for a short duration. To curb the chance of loss, they invest in high-interest rates 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 a low-interest rate in a growing business. As a 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 compared to angel investors.
6. Business involvement
Angel never gets involved in their investment’s business; they only care about their investment return.
Whereas venture capitalists care about their investment’s business, as venture capitalists are experienced people, they provide 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 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 invest in a combination of their of. They invest after calculating their risk, so they invest accordingly.
