Venture Funding Vs Angel Investment

There are basically two kinds of options in front of you when you are trying to acquire some capital for your new entrepreneurial endeavor. You might be interested in either venture funding or angel investment. Most people are likely to think about joint venture funding at first, because it is the more popular option and because it is somewhat simpler to find a venture capitalist, but given your needs, you might be much better placed in finding an angel investor. What you really need depends on you, but here are some points that can help you decide what’s best for your business.

The truth is that many venture capitalists get a lot of proposals from companies for their capital financing needs when they want to upscale their industry or diversity or even for new startups. In many of these cases, the venture capitalists find that these proposals aren’t suited for their own expectations and the proposals are turned down instantly. This is what happens when the entrepreneurs applying for the business finance do not contemplate upon their needs properly. It is necessary to look at their needs and at what their potential financers are looking for. In some cases, angel investors might be a better bet than venture capitalists.

Who Is a Venture Capitalist?

A venture capitalist is someone who is ready to invest money in a particular business and is interested in the returns that the investment will bring in. These people may or may not provide other kinds of help for the business and may or may not be involved in the actual functioning of the business. However, they will keep track of the business’ progress and will provide inputs as and when needed. Venture capitalists are usually preferred for small and medium sized businesses. Larger corporations have lately begun using the finances of venture capitalists when they need to break into a new market or diversify in certain ways.

Who Is an Angel Investor?

Angel investors might be individuals or a group of persons or even a small company that has capital to invest in new entrepreneurial activities. These are investors who want to see new companies starting off and are prepared to wait for some time till the business begins to pay off before they can ask for their return on investment. These people may or may not have any business acumen themselves. However, there are many angel investors who were successful businesspersons themselves before and now have retired but still want to see their money being put to use. Most angel investors are highly wealthy people and they aren’t actually looking for profiting from their money; they just want to put their money in a substantially safe place. These people can dole out large sums of money, even in millions. But, at the end of it all, when the business is set up and has begun to pay off, angel investors will begin to claim their returns and in some cases these could be very high. Usually, angel investors will seek a bigger return on their investment than traditional banks and even venture capitalists.

Venture Capitalist Vs Angel Investment—The Main Points

So, now that you have a basic idea of what venture capitalists and angel investors are looking for, you are in a position to decide which of these will be better for your business needs. Should you choose a venture capitalist or an angel investor for your entrepreneurial funding? Here are some points that can help you decide.

The Nature of Your Company – This is one of the first things that any person who wishes to fund your business will want to look at. Whether it is a venture capitalist or an angel investor that you are looking for, they will be interested in companies that have a high return for growth. However, they have their individual preferences as well. For instance, venture capitalists look for fast returns. They will like to invest in companies that have a potential to rise very fast. They will thus be interested in companies that deal with the IT industry or biotechnology or some such fields. They will be interested in companies that have a potential for rapid expansion. Angel investors, on the other hand, are prepared to wait. They are ready to invest in small companies as well as starting businesses if they are impressed with their concept, and they are prepared to wait till these businesses begin to start showing returns, which could be as many as 2 years even if the business idea is really good.

The Size of Your Company – This is more important to venture capitalists than to angel investors. Venture capitalists expect that the businesses they invest in can have high returns. In addition, they always keep their sights on the future prospects of the company. They are on the lookout for businesses that might expand on a national or international scale, or a business that might be taken up by a large scale corporation, or a business that might offer an IPO at a future date. On the other hand, angel investors will look for companies that don’t want much investment to begin with but have a large potential for growth.

The Experience of the Entrepreneur, that Is You! – Venture capitalists like to play very safe. Hence, even if they do choose a startup business, they will choose one that is spearheaded by someone experienced and well-qualified to run the show. If you have had any kind of prior experience with a similar kind of enterprise, then you could expect a venture capitalist to back you up. It is also all right if your experience has been with another partnership before. However, angel investors are freer with such restrictions. They don’t mind backing up a complete novice, if they are convinced that they will do a good job. They will have their returns later, but they are better for people who are just starting out into a territory that is completely new for them.

These are some of the points you need to consider when you are trying to decide between a venture capitalist and an angel investor for your business funding needs.