Difference between an Angel Investor and a Venture Capitalist

By: | Updated: Jun-24, 2019

Both an angel investor and a venture capitalist offer alternative sources of funding for startups and small businesses. But while the two are great investment vehicles, there is a big difference between them.

Summary Table

Angel InvestorVenture Capitalist
Uses their own money to make investmentsPools money from foundations, insurance companies, corporate pension funds, and other sources to make investments
Investment decisions are made by the angel investorInvestment decisions are made by the venture capital firm
Investment decisions usually take a shorter timeInvestment decisions usually take a longer time
Commonly invests during the early phases of a startup or a businessCommonly invests in stable businesses that have already shown impressive growth
Invests lower amountsInvests higher amounts
Average investment is around $330,000Average investment is around $1.7 million
Faces higher risksFaces lower risks

Definitions

An angel investor, also called a seed investor, is an individual who finances small startups during the early phases of the business.

A venture capitalist, on the other hand, is either an individual or a firm that draws funds from other sources to invest in a business.

Angel Investor vs Venture Capitalist

Both provide financial solutions to support business growth, but there is still a huge difference between an angel investor and a venture capitalist. Below are some of the factors that set the two apart:

Funding Sources

Angel investors typically represent accredited investors with a high net worth and usually use their personal money to fund a startup or a business idea. Venture capitalists, by contrast, pool money from foundations, insurance companies, corporate pension funds, and other sources to invest in a business.

Decision-Making Body

Angel investors have more control over investment decisions since they are using their own funds. Often times, they offer financing solutions to friends or family members who have a business idea or a startup that can generate profit.

This is completely the opposite for venture capitalists, whose funds are controlled by a venture capital (VC) firm. Although all stakeholders own a part of the fund, the VC firm secures and manages the entire fund and makes investment decisions based on calculated risks and profitability.

Timeframe

Between the two, angel investors make quicker decisions since they have the autonomy to choose where their money goes. Venture capitalists, on the other hand, has a more complex decision-making process since every stakeholder has differing interests. Before investing in a business, the VC firm needs to carefully weigh factors that can greatly affect investment returns, which usually takes a longer time.

Business Phases

Angel investors and venture capitalists fund businesses at different phases. Angel investors either provide a one-time investment that helps kick-start a business or offer continuous financial support during the early stages of a startup. Venture capitalists, by contrast, are least likely to invest early unless they see a huge potential in a business idea. The VC firm is more inclined to fund stable businesses that have already shown impressive growth.

Amount of Investment

One factor that greatly sets the two apart is the amount of money they invest. Since angel investors draw from their own funds, they usually invest lower amounts than venture capitalists. On average, angel investments are at around $330,000, while venture capitals can peak up to $11.7 million, depending on the VC firm.

Risk Level

Angel investors face higher risks since revenue streams are not yet fully established during the early phases of a startup. Venture capitalists, on the other hand, fund businesses that already generate revenues, minimizing possible risks.

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