Should a Small Venture Choose Angel Investors or Venture Capitalists

All investors work with the primary motive of earning returns from their investment, and thus angel investors and venture capital funds both have the same objective. Small businesses can approach either of them based on their stage of business.

Angel investors are usually wealthy individuals or former entrepreneurs who want to support new ideas and ventures before these have taken off. Thus they invest in businesses even before there is any revenue stream. These are also accredited investors and have a minimum net worth of one million dollars and a set annual income. The money they invest is their own personal money, rather than derived from the market.

Venture capitalists are professional investors working for firms or entities, whose money is derived from other companies, funds and organizations. VCs invest in budding companies which need not show any good profitability, but a promise of growth and good returns. VCs also put themselves in board positions and take an active role in management and future strategy.

An angel investor works on personal perspectives, and may like someone’s idea or product. They also tend to hang together in groups and clubs. Anyone, including a family or friend, can become an angel investor. The stake asked by angel investors is usually between 20-50 percent.

Given the slight differences in their goals and perspectives, angel investors and VCs tend to invest in varied types of ventures. An angel investor will prefer start-ups for which they have a personal liking, whereas a VC will prefer established businesses that can be trusted. But both require equity in return, and need some controlling hand in the business.

A small business can approach angel investors through their networks, and they can also be found online. The local community is a good place to search as well. VCs are more established players, and a small business will need to create a presentation to seek funding. Other than these, small businesses can also seek secured funding or unsecured business line of credit.

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