Feb 21, 2022
Angel Investing vs VC Investing: The Advantages of Angel Investors
With $621 billion being invested by VCs and 2,377 angel investment rounds being closed in 2021, both VC and angel investors are actively helping startups raise funds nowadays. However, traditionally, startups prefer to choose business angels more than venture capitalists.
Why do they do that? And what’s the difference between VCs and angels? Let’s see.
A VC is usually a firm that invests in startups using the capital provided by other investors – investment companies, pension funds, professional investors, etc.
A business angel is a person – an accredited and professional investor – who invests their own money into innovative business undertakings.
If both of them basically do the same things, why do startups prefer angels to VC funds? Let’s compare both of them to feel the difference:
How Do VCs Invest?
✔Traditionally, VC funds prefer to invest in more mature startups – from an early stage to later stages, giving their focus on projects that have already built their MVPs and have a proven track record.
✔VCs, especially the VC funds, are more experienced and professional at startup investing – this is usually a team of investment managers that has been investing venture capital full-time, for many years. Globally, there are not so many professional angel investors, leaving alone Central Asia.
✔VCs usually invest large sums of money. According to the Small Business Administration, the average venture capital deal is $11.7 million. Business angels, on the other hand, typically invest between $25,000 and $100,000.
✔VCs are very careful with investing in risky businesses, that’s why they conduct long due diligence processes and check startups thoroughly before they make their final decision.
✔Investors are more likely to invest in a startup if they know it’s been previously invested by a VC due to the VC’s careful background check, experience, and simply name/brand.
Advantages of Angel Investing
✔Angels are more likely to invest in your business.
Angels, as opposed to VCs, prefer to invest in early-stage or even seed/pre-seed startups. Thus, they are more open to risks.
✔Angels are truly interested in you.
If an angel investor picks a startup, they do believe in its idea. Partially, that’s because they invest their own money, not the money of others as VC funds do. But the main reason is that they believe in the idea and team of the project, rather than in numbers looked for by professional VCs.
✔Business angels invest faster.
Angel investors are faster in their due diligence – they do not usually check as many legal and tech aspects as professional VCs would do, requiring less bureaucracy to be done by the founder/founders.
✔Angel Investors follow an individual approach.
A very important advantage of angel investors lies in their personal attitude.
Angels tend not only to support startups financially, but also provide some professional help – tips on how to build your team, execute the strategy, and other valuable info VCs would not give to you.
✔Angel investors can form syndicates.
If an individual investor joins a syndicate, together with other investors, they can co-invest far bigger sums of money than a VC fund would do.
✔Angel investors also create a brand.
Yes, there are far fewer professional angels than VCs. However, if an angel investor who’s been successfully investing in the same startups for years, chooses you, their name is also a good sign for other investors to join your fundraising campaign.
On the VentureRocket Eurasia, we provide the first central Asian co-investment and startup management platform where accredited investors can co-invest in vetted tech startups from the region.
To start co-investing, please, register here.
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