What is the Difference Between Venture Capital and Angel Investors?

The main differences between venture capital and angel investors are the amount of money involved, and whether the investor is handling their own money. Venture capitalists will typically have very large amounts of money at their disposal and the money will typically not belong to them. Angel investors are often individuals investing smaller amounts of their own money. Other common differences between venture capital and angel investors may be their investment goals and the way they structure their investments.

Both venture capital and angel investors are typically looking to make a profit, though the amount of profit and the time scale will often differ. Many venture capitalists will invest very large amounts of money but require a plan for an initial public offering (IPO) at some point, or another well defined way to make their money back and take a profit. They will often seek to obtain a controlling stake in the company that they will later be able to monetize. Well established businesses that have entered a growth phase are one of the things a venture capitalist may look for.

Angel investors often invest in smaller businesses that may pose greater risks. Due to this, they often look for a much higher return on their investment than a venture capitalist might. Some will simply offer loans with a high interest rate, though many will look for equity ownership. This typically involves the creation of a former shareholder's agreement so that the angel investor is able to own stock in the privately held company. Their money may provide operating funds to reach a state where venture capital can be obtained, the business can be sold, or an IPO offered.

Since angel investors typically invest their own money in businesses that may represent a relatively high risk, they sometimes seek to mitigate that risk. To this end, they will sometimes sit on a board of advisors, especially if their expertise is relevant to the particular industry. This is not necessarily unique to angel investors, as venture capitalists will sometimes want to install their own board members or executive officers.

Start-up companies in very early stages of development may have difficulty securing funds from venture capital and angel investors. Venture capitalists are typically looking for more established businesses that require a substantial sum to expand, and while angel investors will often look at smaller companies, they are usually more interested in those that have left the start-up phase. Companies that lack the connections or track record to deal with venture capital and angel investors often must rely on a combination of personal funds and investments made by friends and family.