Venture Capital vs. Angel Investment
Venture Capital is often misunderstood and confused with other forms of outside private funding, such as private equity and angel investment. Key differences between angel investment and venture capital are outlined below. (Note: See the Brain’s Guide to Angel Investment for a more detailed overview of angel investment.) At this time, we are not going to dive into private equity or the increasingly popular growth equity which relates to investments in established companies.
Although the source of the money invested by the two groups is very different, it is worth noting that the lines between angel investment and venture capital investment are blurring.
Historically, the two were seen as separate based on numerous criteria including:
- Amount of funding - Venture capitalists generally backed young companies seeking $1 million+ and angel investors backed start-ups seeking up to $1 million and generally funded companies for less than $500,000 to develop a product or business concept
- Level of involvement – Angels are more passive while venture capitalists are more hands-on
- Level of risk – Angels backed companies at an earlier stage of development where risks are greater
The blurring of the lines between the two groups has resulted from several factors including:
- Increased collaboration – Venture capitalists and angel investors co-invest with one another increasingly today
- Angels invest more – Through organized angel groups or angel syndicates, groups of angels can band together and lead larger investment rounds
- Venture capitalists invest less – The relatively new phenomena of seed venture capital investment has seen large venture capital firms invest as little as $100,000 in young, risky companies