June 26, 2011
To decide between the two you need a working knowledge of the differences between angel funding and venture capital. Here are a few major differences:
Angel investments will vary in amount, but as a rule they tend to lean toward the smaller amounts and are generally better suited to small ventures. On the other hand, venture capitalists are inclined to loan at least 2 million. In their mind a 40%, return on a larger investment is better than 100% return on smaller amounts. Overall venture capitalists have access to more investment dollars than your angel investors because they are most often groups of people with massive cash and angel investors tend to be alone looking for the best way to put their money to work.
Nonprofessional versus Professional
Venture capitalists are professionals for the most part; they generally belong to a firm and have gone through an arduous hiring process. These investors have had to meet some strict guidelines just to have their positions. Angel investors may or may not be professionals, generally, they are not. Venture capitalists sole profession is to seek out good investments while your angel investor is just a person, perhaps a businessperson, looking for a way to earn returns on their money.
Own Money versus OPM
Think of your venture capitalist as a manager of other people’s money, OPM, they are funds managers if you will. Their cash funds come from corporations, wealthy families, individuals, and pension funds. Angel investors are almost the direct opposite, as the money they have to offer is what they have saved or earned during their lifetime. This is good news on one front, they do not have a set criteria for ROI, return on investment, which means they can invest all they want. For example, they can invest for smaller returns if they like in businesses that fund a cause or help the community.
Almost always the venture capitalist is going to want to sit on your board, as they stay involved in the investment. Angel investors will not automatically ask to be involved at this level, they may want to, especially in businesses where they feel they can make a valid contribution. At the end of the day though a venture capitalist is much more likely to be on your board than an angel investor.