UPSC Express

• Business Angel Investors are individuals, often successful business people who are investing their own personal funds into a potentially rewarding business opportunity.
• Whereas Venture Capital is invested by firms or companies that use other people’s money. They raise that money by offering investors a chance to take part in a fund that is then used to buy shares in a private company.
• Business angels use their own money and venture capitalists use other people’s money affects their capacity for risk and of course an individual angel investor doesn’t have as much to invest as a venture capital firm.

Angel Investors Vs Venture Capitalists:

• Angel investors invest mostly as individuals, while venture capitalists are business enterprises/ companies comprising of several individual investors.
• Angel investors usually fund start-ups and new businesses where as Venture capital are seldom interested in early-stage, unless there are compelling reasons.
• Angel investors invest their own money into businesses, but venture capitalists invest money contributed by several investors.
• Because they are individuals, angel investors are usually unable or unwilling to fund businesses that require huge funds. Venture capitalists, on the other hand can fund businesses that require large funding, since they are holding funds from several individuals.
• In addition to the invested funds, angel investors usually contribute personal experience and relevant contacts to the growth of businesses they invest in. Some venture capitalists don’t go this far.
• Angel investors may be willing to “hands-off” your business if they have nothing relevant, aside the capital to contribute. But venture capitalists will always require board seats and complex deal terms including the ability to control subsequent financings.
• Angel investors usually require very high Return On Investment (ROI) because they take very high risks by investing in new businesses that may tank. Venture capitalists usually contribute to already-growing businesses with reduced risk of failure, so they don’t require very high ROI.
• Angel investors tend to believe in the entrepreneur and invest in them as a person. Venture capitalists being less emotional and more process involved mainly evaluate deals and make offers.
• Angel investors allow for flexibility in deal structuring and financial decisions. venture capitalists are rigid.
• An angel investor fund businesses for motives beyond financial gains (such as social responsibility and community involvement). A venture capitalist is obligated to maximize investors’ returns and outperform other venture capitalists, in order to attract even more investors.
• Angels tend to avoid follow-up investments out of fear of losing more money, in case the business fails. Venture capitalists usually invest additional funds at later stages to assist with growth.
• Angel investors are found in virtually all industries and have diversified portfolios. Venture capitalists are involved in limited industries (mostly technology) and they have limited portfolios.