Venture Capitalist and Angel investor terms are often interchanged to mean the same thing. There are many similarities that can back this up but there are multiple differences between the two suggesting that they don’t mean the same thing. Start-ups will require funding and both Angel Investors and Venture Capitalists can be the source of that, especially in Kenya now where multiple start-ups are coming up as the entrepreneurship spirits increases.
They are alternative sources of finances. They provide monetary support to business start-ups that they don’t originally own.
They finance mostly start-ups that are innovative and outstanding. They have been linked to Science related projects or those that have the potential to revolutionize the technology sector. However, they have funded other businesses that didn’t quite fit into this demographic.
Funding process – This is the same for all of them as it starts with the first step of injecting capital and ultimately ends with the investors exiting the businesses.
Angel Investors are individuals while Venture capitalists are firm or corporate. An angel investor is basically someone with extra money that they are willing to lose or gain more via their investment. On the other hand, VC’s are firms made up of several investors and their investments are in the name of the company. VC’s invest in start-ups for a living in that they are professional investors with both limited and general partners.
Amounts invested. Angel investors will generally invest lesser amounts than their VC counterparts for obvious reasons. Disposable income for one individual cannot be matched to that of a group of people of course with the assumption that the individual VC investors are on the same level as the angel investor planning on investing.
Due diligence. VC firms are professional investors and they, therefore, invest a lot of time and effort in investigating the potential business and hence their due diligence is informative and they end up making more informed choices. On the other hand, angel investors do conduct due diligence but minimally as they are not bound to. The money on the line is solely theirs.
Type of companies they invest in. Angel investors are more likely to invest in start-ups at their formative stage while VC’s will only invest in these start-ups if they have a high chance of succeeding otherwise they will find established start-ups with some success track record who require financing maybe to expand geographically or add new products and services.
Involvement. VC’s will be intensely invested in the normal running of the business as they have to make money for the entity. Angel investors main goal is to provide financial support and might only be involved when asked for advice or when there is a critical need to be.
It is important that entrepreneurs do their own due diligence on VC’s firms and angel investors. Also, most of the angel investors will refrain from signing non-disclosure form so it is paramount that you utilize patents, copyrights, trademarks where necessary and only divulge necessary information. As an entrepreneur, it is your duty to take steps that will benefit your idea in the long run, all the same, make sure the benefits are mutually beneficial and you utilize the legal process as much as you can.
Caroline Mumbe is passionate about anything money related. She is an entrepreneur and writer who enjoys simplifying financial concepts and making sure people lead their best financial lives. She reads a lot and knows the best coffee joints in Nairobi.