Venture Capital or Angel Investing

What is Venture Capital?

Venture capital (VC) comes from a handful of funds that invest in early-stage, high-risk companies in exchange for equity. The companies that get funded are startups that are not yet generating revenue, need further product development, and have little to no collateral. Venture capital investments are not loans, but equity-based investments, meaning that the VCs will get a percentage of equity in your company if they decide to fund your business. VC funding can range anywhere from $250,000 to $1 million. It’s important to note that venture capitalists only fund startups when they’re at an early stage before the business has proven itself. VCs will invest in your company even before it has a product or has found customers. They’re taking a bet that your idea will be successful. Venture capitalists typically invest in companies with high growth potential. So, if your startup solves a problem that everyone has for example, if your startup is a nonprofit that helps people in need it’s unlikely to attract venture capital. Venture capital funding is ideal for founders who want to follow the traditional Silicon Valley route of building a company. VCs will look for companies that will create a large return on their investment, which generally means that they want to sell the company for a large amount of money.

What is Angel Investing?

Angel investors may be individuals or groups who invest in early-stage companies in exchange for equity. Unlike venture capitalists, angel investors are not bound by a fund, so they can make individual investments. Angel investors are a type of informal investors who fund businesses in the early stages of growth. Unlike venture capital investors, angel investors typically invest their own money instead of other people’s money. This is a major difference, as venture capital funds other people’s money and therefore has more due diligence and regulatory concerns. There are two ways to get angel investors: cold calling or attending an “angel investor meetup.” Angel investors typically fund companies that don’t have a strong enough idea or product to get venture capital. Unlike venture capital, angel investors don’t look for a huge return on their money. Instead, they’re looking to build a portfolio of successful companies that will provide them with a modest but consistent income stream.

The Pros of VC Funding

- Lots of options: If you’re trying to raise a seed round of funding, you’ll have lots of options to choose from. With so many investors out there, you’re likely to find a fund that both meets your needs and that you like working with.

- In-house expertise: Venture capital firms have experts on staff who can help you with everything from hiring to marketing your product. You’ll have access to these experts and be able to call on them whenever you need help.

- Access to capital: Venture capital firms are constantly on the hunt for great deals. If your startup is one of those deals, you can get access to VC funding quickly.

The Cons of VC Funding

- High risk: In exchange for funding your company, a venture capitalist will require a large amount of equity. This means that if your startup is successful, you won’t own a large portion of the company. The venture capitalist will likely own the majority of your company, so you won’t be able to get rich off your idea.

- Investor control: If you decide to take venture capitalist funding, you’ll have to give up a lot of control. Venture capitalists usually demand seats on your board of directors, which means that they’ll have a say in every major decision your company makes.

The Cons of Venture Capital Funding

- High risk: In exchange for funding your company, most VCs will require a large amount of equity. This means that if your startup is successful, you won’t own a large portion of the company. The VCs will likely own the majority of your company, so you won’t be able to get rich off your idea. - Time commitment: If you decide to pursue venture capital funding, be prepared to spend a lot of time networking and pitching your idea to potential funders. It can take months to find the right investor and clinch a deal. - Investor control: If you decide to take venture capital funding, you’ll have to give up a lot of control. Venture capital firms usually demand seats on your board of directors, which means that they’ll have a say in every major decision your company makes.

The Pros of Angel Investing

- Quick: Unlike venture capital firms, angel investors often make their funding decisions quickly. This means that you could make a single pitch and have funding in as little as a couple of weeks.

- No equity: Unlike a venture capitalist, an angel investor won’t take a large percentage of your company. You won’t have to give up any equity at all.

- No due diligence: Unlike venture capitalists, angel investors don’t do a lot of due diligence. This means that you won’t have to jump through hoops to get funding.

- No regulatory concerns: Unlike venture capitalists, angel investors don’t have to worry about regulatory compliance. This means that you won’t have to jump through regulatory hoops to get funding.

The Cons of Angel Investing

- Few options: While many venture capital firms are open to funding your startup, only a handful of angel investors are willing to invest in early-stage companies. If you’re looking for funding, you may have to go to several angel investors before you find one who’s willing to invest.

- No expertise: Angel investors don’t have in-house experts that can help your company succeed. They’re simply individuals who have money to invest and are willing to put it into your company.

- No direct access to capital: Unlike venture capitalists, angel investors don’t have a fund. This means that you’ll have to go through a lengthy process to get funding from an angel investor.