Angel investors vs Venture capitalists: What’s the best for you?
Many founders, especially in the startup business, cannot find the fund to raise their business because of the unknowledge about the investors. To build a startup strong and survive in the market, the founders need more money than just their own funds or debt from the banks.
However, the banks tend to not be available for new startups due to risk. In that case, getting funding from Venture capital or an Angel investor pops up as a pilgrim (a startup) looking for a lake among the arid desert regions.
In fact, angel investors and venture capitalists are interested in funding companies, particularly startups, to exchange a piece of the action. Nevertheless, there are still several differences between the two entities.
What is an Angel investor?
An angel investor (private investor or seed funder) is a high-net-worth individual, who invests their own money into startups. They mostly fund into an early-stage (seed stage) business when the company exists only as an idea or perhaps when the running up is initially in place.
Apparently, this is the most important phase of a new business to survive in the market and faces a bunch of challenges. The funds help startups grow and sustain in the critical stage of development until the companies require more sizable investments from venture capital firms for the next stages.
The funding of angel investors varies at different levels. It can be low around $5k, or even higher, approximately $100k. They also can combine into a group form as a syndicate with an amount of funding up to 1 million dollars and more for selected companies.
As the name of angel investors, they might not be mainly on profit like a venture capitalist but could invest to exchange the ownership equity or convertible debt. However, some seed funders pour their money into a startup merely to supply the finances that push the company’s development.
Because of the comprehension of the founders who need to hold the highest stake to encourage their companies to succeed, angel investors don’t usually acquire more than 25% stake in the company. Furthermore, the business owners will not be required to repay if the companies go belly up.
What is a Venture capitalist?
Unlike an angel investor, a venture capitalist pools funds from other investors called a limited partner (LP), and perhaps in addition their own money. They can write larger checks than angel investors, which could reach 100 million dollars for the company.
The limited partners (LP) can be wealthy individuals, insurance companies, pension funds, and other institutional investors. While each partner has partial ownership of the fund they have invested in, it is the venture capital firm that holds control over where to invest.
Indeed, venture capital basically invests in new businesses with breakthrough ideas with high potential for growth and advancing social progress in the long term, but coevally containing a substantial amount of risk enough to scare off banks to fund.
However, as the above saying, even venture capitalists are gamblers who could hazard into very new ideas, they usually don’t want to jump into the idea stage because of the risk and lack of conviction.
In this case, venture capitalists tend to wait until getting a proof of concept in hand, then do due diligence before deciding to invest. Metaphorically, they are the high experts at hunting a ‘unicorn’ among a herd of horses.
After investing in a company, angel investors are more likely to keep a ‘hands off’ policy while venture capitalists usually take a board seat and are operationally involved in the company.
How can startups approach investors?
In conclusion, both angel investors and venture capitalists are holding a substantial position in the startup process of a business. That’s why most startups try to incarnate themselves as the ‘unicorns’ of these hunters.
However, not many of them know how to perform, or at least convince investors to take a stare at their projects. For the resolve, besides preparing a potential project, startups can begin finding the chances in real by attracting investors through:
Involving in offline business events or association meetings. Businesses and founders usually attend these events to network and explore collaboration opportunities. Hence, it is a chance for startups to introduce their potential projects to investors when they attend these events.
Being enthusiastic to dip into the startup communities on social media like Launch, Vietnam Venture Capital Community (VVCC), TAO start-up, etc. These communities are ‘fertile grounds’ for startups to connect and make attention from investors.
Connecting to a third-wheel company that collects a huge amount of data from investors and has high expertise in supporting startups fitting themselves with investors’ tastes and raising the ability to get the deal. This is also the way that most previous successful startups used its speed, convenience, and effect. In Vietnam, Wiziin Inc. is one of the most dynamic partners that provide the service connecting startups with investors.