Differences

Angel Investors

Venture Capitalists

Demographics

Typically male with an average age of 49 years and has a graduate degree

Typically male with an average age of 42 years

Experience

Have been investing five years or more, have entrepreneurial experience, and will provide “hands-on” guidance to early-stage companies.

Have a decade or more experience and will provide their own associate staffing to ensure their investment.

Money source

Private investor- uses their own personal money to fund their investments

Professional money manager- they pool capital from other sources, such as pension funds and university endowments

Investment amount

$50,000 to $500,000

$500,000 to $5+ million

System for analyzing and managing investments

• Act solely as individual investors, many have professional investment experience, and will bring considerable industry knowledge to an entrepreneur and management team.
• Have a practical, hands-on approach to building a company and are willing to work within the structure that the founders have put together.

• Have a formalized approach to investing where they employ a team of human capital to maximize profit and growth potential, i.e. consultants/ associates who are specifically involved in due diligence on potential deals, have a network of investment bankers and others in different capital markets to provide additional sources of financing for their portfolio companies, and have access to high-rank legal counsel to help them structure investments.
• This structured method allows VC’s to have more financial, due diligence, and valuation skills when compared to angels.
• Have “hands-off” experience.

Strategy for reasonable return

• Risky approach to investing- believes in early-stage investment (seed and start-up stages) strategy in which they can receive more slower and modest returns over their entire portfolio.
• Angels may get involved with a company in its earliest stages because more equity is available at a lower price and there is an opportunity to shape the strategy and development of the business.

• Conservative approach to investing- even though VC’s invest in all stages of a company; they believe in the “home run theory” of investing, in which later-stage companies (mature, high market capital companies) will minimize their risk of loss.

Structuring the deal/financial decisions

Flexible

Rigid

Amount of control

More likely to play an advisory role for company founder and management team

More likely to require one or more board positions to gain control of corporate decisions

Requirements for investing

Provide the initial funding of small amounts (from tens of thousands to hundreds of thousands of dollars) for a company, even before the company has demonstrated any kind of success; however, the company must show considerable potential for growth.

Provide millions of dollars per investment; however, VC’s are more likely to invest in companies with a proven track-record of business success. The company must gain $25 million in gross revenue potential from their unique product or service before the investment and need to make a 50% profit margin.

Reasons for investing

An angel funds companies for motives beyond financial return, social responsibility, and community involvement

Are obligated to maximize investor returns and to outperform other venture funds

Investment time

3-7 years

5-7 years

Investment approach for reasonable return

Risky- believes in early-stage investment (seed and start-up stages) strategy in which they can receive more slow and modest returns over their entire portfolio.

Conservative- even though VC’s invest in all stages of a company, they believe in the “home run theory” of investing, in which later-stage companies (mature, high market capital companies) will minimize their risk of loss

National recognition

No. There is no national directory for active angel investors; therefore, the entrepreneur must actively network their influences to find the right one.

Yes, VC’s advertise their location. There are many extensive directories listing active venture capitalists.

Follow-on investment

Rarely- angels tend to avoid follow-on investing because of the risk of losing more money if a company is not successful as predicted.

Yes- they will re-invest/put in additional amounts of capital at later stages to assist with growth

Industry and portfolio

Found in all industries, including technology, pharmaceutical,  publishing, insurance, finance, etc., and have diversified portfolios

Involved in limited industries (mostly technology), and have limited portfolios

Elevator pitch time (the term used to describe a sales pitch in the time it takes to ride an elevator)

Tells the investor how much the angel investor can make, the exit strategy, and business issues.

Should tell the investor how much the venture capitalist can make and how quickly s/he can get out of their business deal.

Investment Consequence

Angel investors believe in the entrepreneur and invest in them as a person.

VC’s are less emotional and are more process involved; they mainly evaluate deals and make offers.