Alternative investment AIFs included under this category are SME Funds, Venture Capital Funds,...
Before discussing the points of difference between Angel Investors and Venture Capital, let us first try to understand what they actually are. Both are investors, but they differ in their motives, investments plans, and involvement with the investee companies.
The High Networth Individuals (HNI) who are professional investors and have a fair share of knowledge of the industry. They utilize this knowledge to identify potential businesses and they invest in them in their early formative stages. Angel investors are actively involved in investment decisions. Sand sometimes for the investments they make they accept shares in the business. They occasionally also provide their seasoned advice to the investee organizations.
Unlike angel investors, venture capitalist first collects money from different investors. Such investors can either be Indian or foreign, individuals, foundations corporations etc. Venture capital firms are a group of professionals like investors, custodian, authorities managing the investment decisions etc. They deal in a large number of investments. They are not interested in the businesses in their formative years, but they identify entities with high growth potential and invest a huge amount of money with an objective to make a profit with their growth.
There are many key differences between Angel Funds and Venture Capitalists. In this article we have listed out these points of differences as follows:
Angel investors actually invest their own money. It can be a single angel investor or a number of angel investors can come together, pool in their funds and invest together. As they make their own investment they are required to have the industrial know-how and only after proper due diligence does they invest their money.
In case of venture capitalists, the actual investors are other investors like HNIs and the venture capital firms make the investment decision on their part. They have a team of expert professionals who review promising investment opportunities and make investment decisions.
In case of Angel Funds, the money involved belongs to the angel investors only. Thus they have to make the investment decision based on their logical hunches as the investee organizations are in their initial stages thus there are no statistics available for decision making purpose. As a result, the decisions are based on factors like the originality of the idea, product marketability, founders of the startups etc.
On the other hand, venture capitalist sport folio managers who invest the amount collected from investors in prospective investee companies. As the investment amount is very large they are very cautious while making these decisions and analyze all the available statistics to make an informed decision.
Any business consist of various stages like:
When other investors are unwilling to take risk of investments in startups, Angel Investors take initiative and make investments in businesses in their early stages through providing seed funding.
On the other hand Venture capitalist very rarely invests in such organizations until they have compelling promise and growth potential. They invest mainly in organizations which are in growth or other forward stages. Before making any investment decisions, they always look for business’s track record.
As the angel investors provide seed funding to startups in their formative years, the amount of investment is not too high. As the startup entrepreneurs face a high level of pressure to establish themselves and also have obligations towards their investors, a large sum of investment is not what they are looking for. Overfunding will lead to overvaluation of the budding business which might not have positive effects on it down the line.
On the other hand, venture capitalists prefer to invest in enterprises which have proved themselves and are in their growth stage. As a result, the investment size is much larger than in the case of angel investors.
Angel Investors have in-depth knowledge and insights into the industry, which makes them make informed investment decisions. They are capable of providing valuable advice to the startups along with financial assistance. However, they don’t take any significant position in the organization and just act as a guiding force.
On the other hand, Venture capitalists are thorough professionals, who not only invest funds but also take significant roles in the organization. Their main objective is to help the investee companies reach their potential and have inputs for the same.
The time is taken to make investment decisions vary in case if angel investors and venture capitalist. Angel funds are capable of making quick decisions as mostly they are investing independently.
On the other hand, venture capitalist take their sweet time doing research, due diligence etc to evaluate the investment opportunities and to make sure they are making smart business decisions
The main objective of operations of Angel Fund along with decent returns is to provide support to the startup section of the industry. This is the reason they derive their name from ‘ANGEL INVESTORS’.
The Venture Capitalist have purely financial intentions. They research and look for profitable ventures, provide them financial and advisory assistance and hope to make good profits.