Angel investors and venture capitalists are two types of private investors who provide funding for early-stage and growth-stage companies. However, there are some key differences between them that we will cover in this article.
High-net-worth individuals who invest in companies at an early stage in exchange for equity in the business are known as angel investors. They frequently invest their own funds and take a more active approach to investment, offering advice and mentoring to the businesses they support. The well-known angel investors in the crypto world include:
Investors who fund startups and early-stage businesses with significant room for growth are known as venture capitalists (VCs). They frequently belong to a professional investment firm or fund and typically make larger investments than angel investors.
Related: Venture capital financing: A beginner’s guide to VC funding in the crypto space
They obtain equity in the business in return for their investment, and they frequently have a say in how the business is operated. When the firm eventually goes public or is acquired, VCs hope to profit by selling their equity. Some well-known VC firms include:
Angel investors frequently contribute seed money to startups by making investments in early-stage businesses. On the other hand, venture capitalists frequently make investments in later-stage businesses that have already demonstrated strong growth potential.
Compared to venture capitalists, angel investors often invest less money. Unlike venture capitalists, who might invest millions of dollars in a firm, angel investors often make investments between $10,000 and $100,000.
Angel investors frequently adopt a hands-off strategy and do not actively participate in the company’s operations. On the contrary, venture capitalists frequently support the management of the businesses they invest in, both strategically and operationally.
Angel investors often have a longer investment horizon and can withdraw their money through an initial public offering (IPO), merger or acquisition. Conversely, venture investors often want to sell their investments within a period of five to seven years through an IPO or acquisition.
High-net-worth individuals who invest their own money are angel investors. On the other side, venture capitalists oversee money for high-net-worth individuals or institutional investors and use that money to make investments.
Angel investors are generally more willing to take on higher levels of risk than venture capitalists, who are more focused on minimizing risk.
Angel investors may be more flexible in their investment criteria, while venture capitalists have more stringent criteria and require companies to meet specific milestones and targets.
Angel investors tend to have a more diverse portfolio, while venture capitalists may have a more concentrated portfolio with a focus on a specific industry or sector.
The above differences highlight the approaches and priorities of angel investors and venture capitalists in the cryptocurrency industry. Both have their own weaknesses, and startups may choose to work with both depending on their specific needs and goals.
The weaknesses of angel investments include:
The weaknesses of venture capital include:
Regardless of the above shortcomings, the process of securing funding from investors can help validate a startup’s business model and increase its visibility in the market.
