January 21, 2011
Angel Investors versus Venture Capitalists
What are the things that make Angel Investors and Venture Capitalists different?
From the list of possible differences, there are four that are extremely important for entrepreneurs to be aware of.
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One hundred percent of the time, when a Venture Capitalist invests in a startup company, there are stipulations involved. Usually, they want to have a minimum of one seat on the Board of Directors. This board is a smaller organization of management that guarantees that investor money is properly handled. They are usually very adept at handling the company’s business as well. Angel Investors will usually want to have this type of participation, but not as much as venture capitalists. This kind of company participation has its merits. It is common for investors to invest in companies in which they have a particular expertise that they can utilize in order to give direction to help the company grow.
Origins of the Invested Funds
Angel Investors are usually well endowed people who are looking for different methods to increase their money. These are generally people who have made it big as professionals or have sold their businesses. The money that they give is out of pocket or from family accounts. As a result, their money is less restricted and they have the luxury to invest whenever they choose to do so. Venture capitalists, however, are usually investing someone else’s cash. A pension fund or group of well endowed families may entrust their funds to a venture capitalist to invest in a particular method. It is for this reason that venture capitalists have a set criteria that they have to follow. For example, specific levels of ROI or certain companies. They also have more ready cash to invest.
Professional versus Unprofessional
Another major component that makes these two kinds of investors different involves their level of professionalism. One hundred percent of the time, venture capitalists are experienced investors who invest money for a living. The process of getting into a venture capital firm is extremely strenuous. Angel investors have various levels of professionalism and experience in relation to venture capitalists. However, they might also be amateurs who make investments in startup companies as a hobby.
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This might be the most notable thing that is different between these two kinds of investors. Venture capitalists usually make larger investments than angel investors. For example, a common investment from a capital firm might range from five to ten million with 2 million as a drop dead minimum. This is because they want to get a huge ROI such as forty percent on a large investment to an outstanding return on a smaller angel sized investment. Angel investors can invest in businesses for any amount that they choose. However, it is usually is within the range of 50k- 1million.
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