When you are looking for capital for your business, there are many options to choose from these days. Today, we will talk about private equity- where you give away shares of your company in exchange for capital. Angel investors and venture capital are often mentioned together, but there are some important differences to know about as an entrepreneur. In this blogpost we’ll discuss their main differences and similarities and how to determine which option suits you best.

 Differences

  • Individual vs. fund 
    Business angels are individuals, often successful business people, who are using their own funds to invest in businesses they like, whereas venture capitalists manage the pooled money of others in a professionally-managed fund.
  • Early-stage vs. established businesses 
    Angel investors and venture capital funds focus on businesses in different life cycles. Business angels  fill the ‘gap’ between friends & family and venture capital. They typically invest in early-stage business and startups, which also means that they face a higher risk than venture capitalists. The latter are less interested in early-stage businesses and prefer more established businesses.
  • Invested amount 
    As mentioned before, business angels operate individually and sometimes in so called angel groups or angel networks. The amount they invest varies from €10K and €100K- or more when angels group together. Capital provided by venture capital funds often start from €1M. For early-stage businesses, this amount is often too much.
  • Role in your business 
    Both groups receive shares of the company when investing. However, venture capitalists often require a seat on the board, where business angels will function more as a mentor, to coach and advice the entrepreneurs running the business. In general, venture capitalists will exercise more control over your business than angel investors.

Similarities

  • Private equity 
    Whether you get your investment in the form of venture capital or from angel investors, you are giving away part of the ownership in your firm. Keep this in mind, because this will give you extra responsibilities. Your investors’ aim is to maximize their ROI and it’s your task as a manager to take care of this.
  •  More than ‘just’ capital 
    Capital is not the only thing they provide you with. Venture capitalists and angels have a large network which they can introduce you to. Moreover, they probably have a lot of experience, gained by investing in businesses or by running a business themselves. They’ll give you fruitful advice and hands-on tips.

Business Angels or venture capital: which is better? 

Well, this really comes down to the company’s development. If your company is early-stage, but friends and family are not an option anymore, a business angel is probably best to look for. The amount a business angel invests will be enough for you now, considering the early-stage your business is in. Because of the personal relation you will build with this type of investor, he or she will serve as your mentor. Once your business is up and running, and you’re able to give your potential investors with a little more security, you can start thinking about venture capital.

Whichever option you choose, you need to be aware of your company value to negotiate the investment! Get started with Equidam and find out your business worth!