The Difference of Angel Investors vs. Venture Capitalists

For business owners, there are a lot of ways to fund your business. You can take a loan from the bank or cooperative, use your own savings, or borrow money from angel investors and venture capitalists.

For investors, one way to grow your money is to become an angel investor and venture capitalist. Both types of investors need trust into the business they’re investing in. But what separates them is their equity holdings in the business.

Angel investors are usually private individuals. They are usually friends or family members that have money who believe in the potential of a particular business idea. What makes angel investors unique is that they are not involved in the management of the company or business. While they may voice their opinions when it comes to long-term strategies, the daily management of the company is not something that occupies high interest for them.

In addition, angel investors are not as rigid as their counterparts affiliated with private firms such as a bank. Because of this, their standards for handling out funds for the business are not as strict.

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In contrast, venture capitalists are usually corporations handling out funds to start-up businesses in exchange of a share in the company. Thus, they are usually called equity financiers financing businesses that are risky but have the potential for high return. However, since amounts involved in venture financing are high, business proposals submitted to venture capital firms are subjected to detailed due diligence before getting approved or denied for venture financing.

Facebook is a perfect example of a company that benefited from venture capital financing. Imagine if you’d invested $1,000 in Facebook, like co-founder Eduardo Saverin did just after Mark Zuckerberg launched the site in the spring of 2004. Or even $500,000 like Peter Thiel (one of the co-founders of Paypal) did later that year. Both men are now multi-billionaires.

I have been an angel investor twice. The first time was a failed venture into a computer business way back 2006. I lost the bonus that I got in my company before when I invested almost all of it in that business. Lessons learned here is to make sure that you really trust your business partner/s before investing into their business. Make a thorough due diligence not just of the business but also about the backgrounds of your business partners.

For the second time to be an angel investor, I invested into advertising projects early this year. Returns will finally materialize next month before the year ends.  πŸ™‚

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