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Оглавление5. Understand the differences between angel investors and venture capitalists
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Venture Capital
The word venture, as in venture capital, is used to describe any money being raised for a new venture. So angel investors will refer to “venture capital” just as readily as venture capitalists will. For more information on the venture capital industry, visit the website of the National Venture Capital Association (NVCA) at www.nvca.org.
Although they both invest in entrepreneurial companies, angel investors and venture capitalists (VCs) are not the same. Understanding the differences between them will help you decide which you should seek for your business. The key differences between the two types of investors include:
Whose money they invest. Angels invest their own money. VCs invest other people’s money. This is a critical distinction and colors all the decisions angel investors and VCs make.VCs raise money for funds ($100 million or more is not unusual for a single fund) from large institutional investors, pension funds, and extremely wealthy individuals. (Capital provided by venture capitalists is sometimes referred to as “institutional” capital.) They must show very high financial returns to these investors. Angels, on the other hand, are not under pressure to make money for other people. They can trust their own instincts and take more risks.
How much they invest. Typically, individual angels invest from $25,000 to $100,000, while angel groups invest $100,000 to $2 million. VCs, on the other hand, routinely invest more than a few million dollars, even in early-stage companies. Since they know some of these companies will go bust, VCs need the other companies in their portfolios to be huge hits to balance their returns.
Size of the potential businesses. Both VCs and angels seek businesses with high growth potential, but because of their responsibilities to their own investors, VCs need to find companies with the possibility of extraordinarily high growth, a minimum of $50 million to $100 million within a few years.
When they invest. While both angels and VCs will invest in companies at any stage of development, angels are more likely to invest in younger companies. “Seed” funding—given in the very earliest stages, when a company is still developing a prototype, refining a business concept, and researching a market—is more likely to be appropriate for angels than for VCs. VCs are increasingly investing in later-stage companies, to reduce their risk.
Decision-making process. VCs almost always make group decisions, with all members of the VC firm weighing in on an investment. Angel investors can make individual decisions.
Relationship to founder. VCs typically see their role as bringing in professional management to the companies they invest in. They’re far more likely to replace the founders of a company with experienced CEOs and managers. Angels, by contrast, expect founders to stay in key management positions, if not to run the company.
Key Differences between Angel Investors and Venture Capitalists
| ANGEL INVESTOR | VENTURE CAPITALIST | |
| Investment criteria | Growth company | Extremely high-growth company |
| Source of investment dollars | Personal assets | Other people’s money; institutional funds |
| Investment range | $25,000–$2,000,000 | $5,000,000+ |
| Expected return | 3–10 times original investment | 5–10 times original investment |
| Typical stage of investment | Seed, start-up, or early | High-growth start-up and expansion |
| What they bring to the deal | Early funding and hands-on expertise | Large amounts of money, team building, industry-specific strengths |
| Extent of due diligence (See pages 131-136 for more on due diligence) | Some to significant | Significant to huge amount |
| Will they replace founder as CEO? | Less likely | More likely |
| Number of deals | 1–3 per year | 15–18 per fund per year |
The Funding Gap
As the chart above reveals, there is a gap between the largest average sum an individual angel will offer and the smallest average amount a venture capitalist firm will invest. The gap begins at $500,000 or less and goes as high as $5 million. This funding gap is often filled by angel groups, who are able to invest higher sums than individual angels but less money than the average venture capitalist. Companies that fall into the funding gap may have a harder time raising money than companies on either side.
Investment Timeline
When in the life of your business is it the right time to approach an angel investor—and when is it better to approach a venture capitalist? This chart shows the typical business stages that angels and VCs invest in.
