For start-up companies that are without an established performance record or enough assets to obtain a bank loan, finding financial backing is critical for both business growth and success. Therefore, many start-up companies endeavor to secure finances from outside investors. So let’s see what it’s all about: Angel Investors vs Venture Capitalists.
The difference between these two types of outside financing is a question that we often receive; therefore we have outlined the differences below.
A typical angel investor will invest $50.000 up to $200.000 in any one company and may seek a hands-on role in the management of the company or will look to act as the company’s mentor, often in online businesses.
Professional investors who focus their time and resources on investing and building innovative companies are venture capitalists. Venture capitalists usually invest more than €1 million per company and tend to focus on a specific niche, which is defined by size, stage of growth and/or business type. They understand acquisitions and mergers and understand the valuation of an enterprise or venture.
In addition to finances, venture capitalists also provide start-up companies with advice, expertise and in many cases contacts and new sales opportunities. In return for this, the owners of the start-up company need to have a strong desire to grow and a willingness to give up some of the company’s ownership or control.
An angel investor, on the other hand, is an individual who invests in companies for his or her personal interest. Angel investors are typically successful and wealthy business people who invest in a high-growth company within a market that they themselves have succeeded in and have expertise in. Additionally, you may want to look into crowdfunding options that have become so popular over the past decades.
Legendary angel investors include Ron Conway (Google, PayPal and Ask investor), Andy Bechtolsheim (co-founder of Sun Microsystems and the first investor in Google) and Ram Shriram (Google investor), all people that have become recognized experts in their fields and also savvy investors.
In practice, it is not easy to acquire a substantial investment in your venture when assets are lacking. You desperately need funds to finance your growth plans, to expand or sometimes even to survive. So how to get Investor-Ready? How to act?
Giving them the impression that you’re knowing all about your product and your market is key and showing confidence is also essential. What may also help quite a bit is having already paying customers or when you have a seasoned entrepreneur within your team. It helps to have somebody on board who knows the market and has done it all before.