This is a really great question – when raising growth capital for your business, what differentiates angel investors from venture capitalists?
Choosing the Right Investors for Your Business
Both angel investors and venture capitalists are really great financing sources for budding businesses, but there are two primary differences between these types of investors that you ought to keep in mind. Read on below to learn now to choose the right investor for your business.
Stage of Business & Amount of Financing
There are 4 stages of the business cycle – Seed, Early, Growth and Mature. Angel investors usually invest in earlier stages, with venture capitalists coming in at much later stages (Growth and Mature).
During my time as a professional investor for a large government-backed financier, I would often meet early stage business owners that wanted venture capital, and I would have to educate them that they usually come in at much later stages.
That being said, there are exceptions; for example, if you are an entrepreneur who has had past successes creating and selling profitable businesses.
Individual angels usually invest anywhere from $10,000 to $250,000 and venture capitalists typically invest $2 million to $12 million. If you are looking to learn more about all the sources of financing and how they compare against each other, udemy.com is a great resource.
This is the probably where these two classes of investors differ the most.
Venture Capitalists, for the most part, invest in a business hoping they will be able to substantially grow their initial investment when selling the business.
They are knowledgeable, and will run some serious numbers to gauge the viability of your business.
Venture capitalists are almost more tied to results of the businesses and will outline their expectations when they give you capital.
Angel Investors invest more altruistically, from a feeling of wanting to help others as well as a genuine interest in the type of business or industry.
The angel investor asset class has really been professionalized in Canada in the last few years, with angel investors playing a bigger role in public funding.
Angel investors function more as partners, and you’ll find they take an active part in helping the business forward, whether it's connecting the entrepreneur to customers or helping manage the business.
How to Connect With Investors
To get in touch with a suitable Venture Capitalist, refer to the site for the Canadian Venture Capital and Private Equity association (Canada) or National Venture Capital Association (US).
You can also meet them at prominent funding events. Venture Capitalists tend to focus on specific industries. For instance, a given Venture Capitalist will invest in only SaaS or mobile apps, or in food products.
As an entrepreneur, networking is key. Actively network with other business owners and they can introduce you to people who have helped them grow their businesses. A referral or mutual connection will go a long way to finding the right people to work with to grow your business.
To reach an Angel Investor, take advantage of angel groups that operate in your local area. You can refer to the site for the National Angel Capital Organization (NACO) to find one in your area or more information on this asset class.
You can present your business idea at regular angel investor meetings or find an angel investor through platforms such as Gust or Angelist.