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When seeking investment to start or grow a startup, two primary options are business angels and venture capitalists (VCs). Both are investors willing to finance new projects, but they differ in structure, investment size, involvement, and expectations. Business angels are individual investors, often friends or family, who invest their own money, typically ranging from $200,000 to $300,000. They usually back smaller startups with lower costs and may offer advice depending on their interest and expertise. In contrast, venture capitalists operate through firms that invest pooled funds from multiple investors, often providing around one million dollars or more. They focus on startups with high growth potential and significant scaling opportunities.
The expected returns also vary: VCs seek higher returns of 35-40%, reflecting their larger investments and greater involvement. They play an active role, ensuring the company has a strong management team and competitive advantage, and often provide strategic guidance and support. Business angels expect more modest returns, between 5% and 25%, and tend to be less involved in daily operations. Both investors assume calculated risks, so startups must clearly present their value proposition and understand the industry to attract the right type of funding and maximize their chances of success.
Seeking investments for a startup is as necessary as it is sometimes difficult. The figures that exist in the investment universe are very varied, but there are two that have a special prominence
When you want to find investment to start or consolidate a startup, there are several options that can be taken into account. Among them we can find two well-known figures: business angels and venture capitalists (VCs).
In this context, a question that is legitimate to ask is: Which are best for our project? Therefore, we want to shed some light on this question, pointing out the main differences.
In both cases they are investors who have a good amount of capital to invest, whose main interest is to inject financing into new projects.
In this line, business angels are individual investors with extra money to invest in a company. Its nature can be very diverse, from friends, family or people more or less close.
Venture capital, on the other hand, is set up as a company that has individual venture capitalists. They invest other investors’ money in high-risk startups with the potential to grow and acquire market share. They are venture capital companies.
Both types of investors assume a calculated risk and expect a high return on the investment made.
The amount of the investment. The first difference between angel investors and venture capital is the amount of investment. By some estimates, an average investment made by angel investors ranges from $200,000 to $300,000. On the other hand, venture capital tends to go further, with estimates that are around one million dollars.
This difference is quite significant, especially when choosing the one that fits the purpose pursued and the nature of the project. Venture capital is the most interesting option for startups that include large setups and start-up costs, with significant scaling potential. On the other hand, business angels are especially attractive for small companies with low startup costs.
The expected return. Another important difference between angel investors and venture capital is the rate of return that each investor expects. On average, a venture capital expects a return of 35-40% on the investment. The average return on investment expected by the angel investor varies between 5% and 25%.
The role and involvement. This is probably one of the biggest differences. Business angels are individuals who are looking for a place to invest a surplus of their personal capital. In exchange, they ask for a shareholding in the company. The inherent risk of loss is higher and the investor will never be willing to invest in the owners of the startup, who are not willing to give up a part of their ownership.
Venture capitalists, on the other hand, are not individual investors but are companies that provide funding to different startups ranging from a food startup to a high-tech company.
Motivation for the investment. Most business angels only make their investment, without getting too involved or involved in other issues of the project. That does not mean that he cannot contribute, if required, knowledge and experience. However, they can give you advice if you are looking for any. In a way, it can be summarized that their participation depends on the nature of the business and their own personal interests.
Venture capital, on the other hand, looks for strong products with huge sales potential. Not only this: before investing, they make sure that the company has a capable management team and that the product or service has a competitive advantage. With their involvement, they can provide strategic focus, senior management support, large-scale expansion opportunities, and business guidance throughout the process.
Specialization. On the one hand, an angel investor is usually specialized in financing startups in their early stages or late technical development or the cost of entering the market. For this reason, the amounts of the investments made by them are usually lower. Still, they’re enough to make a difference in a startup that hasn’t started yet.
On the other hand, venture capitalists are willing to invest in early-stage investments as well as developed companies. Their investment approach depends on the industry they work in. Whether it’s a startup with compelling promise and potential to grow or a developed company with a proven track record of success and growth, venture capital will be willing to invest in such a company.
In any case, if the goal is to contact and get the support of one of these two figures, it is important to do things right. Therefore, it is necessary to take into account some factors that can lead to success or failure, such as being clear about the speech, what we are going to say, to convince them of our intention. It is also important to know the industry, the sector and the project itself.
