What Is an Angel Investor? Difference Between Venture Capitalists and Angel Investors

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What Is an Angel Investor Actually?


First of all, let’s see what a business angel (angel investor) is. This usually is a wealthy person, who is willing to finance a startup, in exchange for a part of the equity of the financed venture, or for convertible debt. It’s not unusual for business angels to be organized in groups, this way they share the risk, combine their experience and know-how and can provide much more financing. In many cases, angel investors are retired entrepreneurs or executives in big companies. They often participate in the management of the startup and provide not only money but also know how, business relations and experience.

Angel investors usually invest their own funds, not like venture capitalists, who invest other people’s money. In 2010, more than 60 000 starting companies received angel financing for more than $20 billion in total. According to these numbers, in the same year the average investment was around $33 000 (which is different from the median value shown below). investing in a starting business is very risky, that’s why business angels require very high rate of return on their investments. They usually invest at a very early stage of a business, providing the so-called seed funding. This is why they are also called seed investors.



Difference Between Venture Capitalists and Angel Investors

Whats’s the difference between Angel investors and venture capitalists? While both parties invest in and help startups scale, business angels differ form venture capital firms mainly in the following manner:

Angel investors – they are usually rich individuals who act in their own personal interest and invest their own (personal) money.

Venture capitalists – these people usually work for a venture capital company (they are employees), act in the interest of their company, and invest their company’s money.

Angel investors usually like to invest in businesses they know about a lot and even have some good experience in. They usually invest in a very early stage of the business, even in cases when the business doesn’t even have revenue yet. This type of investment is much more ‘personal’ and simplified. Venture capital firms tend to invest in businesses that are hot right now and usually have a more complex procedure for applying companies. They are looking for big returns which usually means quickly scalable businesses with very big potential. This type of investment is much more formal.

This is  a cool infographic – The ‘Halo Report’ created by Silicon Valley Bank, showing what business angels invested in the most in 2012:

Halo Report - Sillicon Valey Bank Halo Report 2012 – Sillicon Valey Bank, source:
http://www.svb.com/halo-report/

Are you looking for an angel investor?

If you are are running a start up or a small business, and you are searching for your ‘angel’, here are a a few cool sites you can use to find it. They are probably the most popular places where people and business from all around the world can find angel financing:

* https://angel.co/ – one of the most popular site, you can even find a start up job here.
* https://gust.com/ – the site helped more than $1.8 billion to find their starting companies.

You’d better start with these two sites, but don’t forget that your angels can become your friends and family, too. If you have a rich uncle, may be it’s time to show him your cool business idea?

Find some more cool articles about financing a business on: Fundraising Ideas.