As an entrepreneur, you might wonder the difference between angel investment and venture capital. When the talk of financing your startup rises, you might feel like it’s all about impressing investors and then, winning crores of funds off the bat but the truth is that investment comes in all shapes and sizes. If you are an entrepreneur and are seeking to bring an investor on board, how do you actually do it? What are the options available? Take a look at the difference between the two mains kinds of investment that you might be considering right now – angel investment and venture capital investment.
Angel investment is the most significant source of funding for startups in India. So, who is an angel investor? An angel investor is a person who puts his/her own finance into the growth of a small business, usually a startup, at a very early stage. He/she also potentially contributes to the startup’s process, contributing his/her advice and business experience. An angel investor also, might be a person who is a wealthy, well-connected individual, and has a personal liking to your product or service. Or they can also be a group of angel investors who club together to fund startups. Even a friend or a member of your family who has decided to give funds for your business is an angel investor as well. Angels make their own decisions about investment in a startup and in return, to provide themselves with personal equity, they take shares in the business. The amount that they invest is very flexible. It could be a small amount, sufficient enough to get you off the ground or it could be a much larger amount. They will provide insight and advice about your business, but their job is to give funds, not to build your company.
Venture capital investment is something that brings funding to a whole new level. Other than individual investors, winning venture capital usually involves the whole firm. From investors to board members, it also includes people whose job is generally to help your business develop. Venture capital firms are made up of professional investors. And their money comes from a variety of sources – from individuals and corporations and foundations and private and public pension funds. To ensure that it is developing, there are two kinds of people who work with the startup – Limited Partners and General Partners. Limited partners are those who invest money in venture capital funds whereas general partners are those who manage the funds and work with individual companies. Venture capitals usually deal in very, very large amounts of money. Rather than seed-funding, they seem to make multi-million deals. More and more startups are gaining the trust and money of venture capitalists, winning venture capital investment day by day.
Courtesy: Ah! Ventures, First Published on July 28, 2018 @ Ah! Ventures Blog.