What Makes An Angel Investor Different From A Venture Capitalist?
What source of funding is right for you?
Shark Tank India’s popularity may have helped popularise terms related to entrepreneurship, one of them perhaps being an angel investor. Just as the TV sharks listen to and guide entrepreneurs and invest in their start-ups, in the real world, financers hear pitches. They are angel investors and venture capitalists (VCs). When it comes to raising funds for the enterprise, often there is a dilemma — whether to approach a VC or an angel investor, such as Hem Angels. While the two options have several similarities, they differ in a few key aspects. It is vital to understand these differences to make the right choice.
#1] Funding source
Angel investors are high net-worth individuals who invest their money in a start-up in exchange for an equity stake. On the other hand, VCs work as employees at venture capitalist firms, banks, universities or insurance companies. Their source of capital is the institutions they work for.
#2] Funding size
Angel investors in India invest from anywhere between ₹5 lakh to ₹2 crores. An investor invests not more than 5-10% of the overall portfolio amount in one company. In contrast, VCs will typically take 25-50% of a new company’s ownership, based on the company’s stage, its prospects, invested amount, and the relationship between the VCs and the founders.
Angels investors primarily offer funds towards business expenses. VCs would help build your company successfully by being your sounding board, developing strategies, and recruiting top-tier talent.
#4] Purpose for investing
Angel investors focus on supporting the ambition of entrepreneurs in domains that match their interests and purpose. They are willing to take risks without thinking of immediate profit. Their terms may be more reasonable than a VC’s terms. However, their end goal is getting a high return on investment. VCs invest with the hope of buying out the company eventually or making a considerable return on investment. They may also demand the establishment of a Board of Directors and a seat on it after investing.
#5] Investment stage
Angel investors invest in early-stage businesses, funding late-stage technical development and early market entry. Their funds may be a one-time investment. VCs invest in more developed companies with a proven track record. Their funds catalyse rapid development and growth.
Are you a start-up looking to raise funds? Are you looking for a mentor like angel investors? If your answer is a yes, connect with Hem Angels. We are an angel investment platform with 40 years of experience in the financial markets. Since September 2020 we have closed 16 deals, raised ₹25 crores and have 2,000+ investors. We are game to usher a positive change in the ecosystem. Pitch virtually in front of our Hem Angels investment team today.