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DIFFERENCE BETWEEN ANGEL INVESTMENT AND VENTURE CAPITAL

An angel investor (also known as a private investor, seed investor or angel funder) is a high net worth person who provides financial support to small businesses or entrepreneurs, usually in return for the company ownership equity. Angel investors are also found amongst the family and friends of an entrepreneur. The funds received by angel investors can be a one-time investment to help the company get off the ground, or a continual contribution to finance and bring the company through its challenging early stages.

A venture capitalist (VC) is a private equity investor offering funding to businesses that show high growth potential in return for an equity interest. It may be financing startup companies or finance to small businesses that want to grow but have little access to equity markets. Venture capitalists are willing to risk investing in these businesses because, if such businesses succeed, they will gain a huge return on their investments.

Difference between Angel investor and Venture Capitalist

Angel investments are the investments made by high net worth informal investors, while in the case of venture capital, investments are taken by venture capital companies funded by the companies that raise funds from the different institutional investors or individuals

  1. Meaning

    An angel investor (also known as a private investor, seed investor or angel funder) is a high net worth person who provides financial support to small businesses or entrepreneurs, usually in return for the company ownership equity. Angel investors are also found amongst the family and friends of an entrepreneur. The funds received by angel investors can be a one-time investment to help the company get off the ground, or a continual contribution to finance and bring the company through its challenging early stages.

    A venture capitalist (VC) is a private equity investor offering funding to businesses that show high growth potential in return for an equity interest. It may be financing startup companies or finance to small businesses that want to grow but have little access to equity markets. Venture capitalists are willing to risk investing in these businesses because, if such businesses succeed, they will gain a huge return on their investments.

  2. Risk Level

    Investment made by Angel investors are highly risky investment as they invest in early stage of business or to the start-ups, the investment made by them only upon the idea of business. Angel invests in business in return of equity in the business (portion of ownership).

    Whereas Ventures capitalist investments are low risky as they invest in on-going business (established business) which shows high growth in future. Ventures are group of investors which pool their investment and invest in growing business.

  3. Size of investment

    Angel investor is generally single highly net worth investor who invest in early stage of any business, so their investment size is small in comparison to ventures. In general they investment size is in between millions.

    Whereas ventures are group of people who make investment in growing business, ventures pool their fund together for making investment in the business. So investment size o venture are more, generally their investment size is between billions.

  4. Duration of investment

    Angels are individual investors, to protect from loss they invest for short time in a business. They contribute for short period as they see that business is providing required rate of return on their investment, they withdraw their investment form the business (sell their equity/stake)

    Ventures play in long term investment, as they do strategic investment they invest for long period time in the business. Ventures invest huge amount and they do not go for short duration investment. A venture is pooled investment, so they invest for long time with moderate rate of return.

  5. Rate of return

    As angel investor is individual person, they invest on high interest rate and for short duration. To curb the chance of loss they invest on high interest rate and for short time. So, Angels have high rate of return with high risk.

    Whereas ventures do calculated risk investment for long period in a company/business, they invest on low interest rate in a growing business. As venture is a pooled investment so they do investment after risk calculation and at low interest rate. Ventures have low rate of return as compare to angel investor.

  6. Business involvement

    Angel never get involve in their investment is business, they only care about their investment return.

    Whereas ventures care about their investment is business, as ventures are experienced people and they make advice to their invested business and try to sit in the board of the invested company. Ventures make advice/suggestion to their invested business for growth or to get recover from loss.

  7. Type of Investment

    Angels make investment in equity of the business, as they invest for short period of time, they invest in the company equity Whereas ventures invest in equity or debt of the company, or they may make investment in combination of their off. They invest after calculating their risk, so they invest accordingly.