New England Data Services Blog

Venture Capitalists vs. Angel Investors

When it comes to starting or expanding your business, odds are, if you’re not a subsidiary, you will need to find a source that can provide you with proper funding.  There are many ways to go about this, however the two most common ways or receiving substantial amounts of money for novice companies would be through Venture Capitalists (VCs) and Angel Investors.  The following blog will discuss a few key differences between the two, and hopefully provide you insight as to which might be better for your company.

Venture Capitalist

The definition of venture capital is written on dictionary.com as: funds invested or available for investment in a new or unproven business enterprise.  A VC is simply the person or company who does the investing.  VCs are generally involved with companies who have already established a product and have a potential customer base.

The objective of a VC is to take back what they invest with a much higher return percentage than that of other outside investments.  On average, a VC will look to receive a 25% on their original investment.  VCs generally invest in what is known as “Seed A” companies (companies that may already have a product or a potential customer base), where they will most likely invest between the range of $250,000-$1,000,000 and more.

Angel Investor

Once again the definition of an Angel Investor is provided by dictionary.com as: a financial backer providing venture capital funds for small start-ups or entrepreneurs.  Perhaps the main difference between Angel Investors and VCs is the basis behind the investment.  Naturally both seek to make a return on their investments (Angels, like VCs, hope for around 25% return), however Angel Investors aim more towards the smaller companies that are just beginning.

Generally an Angel works with new companies, and will not sink a large sum of money into any company.  Angels often invest a significantly lower amount of money in any particular company, usually topping out at $150,000.  A company must be careful with an Angel though, as there is often a business background that comes with the particular investor, and they may see fit to have a hand in the way the company is managed.

Questions to Ask Yourself

-          How much money does my company really need?
-          Which options suits my needs best?
-          Is my business plan accurate and ready for presentation?
-          How will I allocate the given funds?
-          Which VC/Angel will offer me the best option?
-          Have I exercised all other options before resorting to a VC/Angel?