For start-up companies that are without an established performance record or enough assets to obtain a bank loan, finding financial backing is critical for both business growth and success. Therefore, many start-up companies endeavor to secure finances from outside investors, for example, angel investors or venture capitalists. The difference between these two types of outside financing is a question that we often receive; therefore we have outlined the differences below.
Professional investors who focus their time and resources on investing and building innovative companies are venture capitalists. Venture capitalists usually invest more than €1 million per company and tend to focus on a specific niche, which is defined by size, stage of growth and/or business type. In addition to finances, venture capitalists also provide start-up companies with advice, expertise and in many cases contacts and new sales opportunities. In return for this, the owners of the start-up company need to have a strong desire to grow and a willingness to give up some of the company’s ownership or control.
An angel investor, on the other hand, is an individual who invests in companies for his or her personal interest. Angel investors are typically successful and wealthy business people who invest in a high-growth company within a market that they themselves have succeeded in and have expertise in. A typical angel investor will invest € 50.000 up to € 200.000 in any one company and may seek a hands-on role in the management of the company or will look to act as the company’s mentor, often in online businesses.
Legendary angel investors include Ron Conway (Google, PayPal and Ask investor), Andy Bechtolsheim (co-founder of Sun Microsystems and the first investor in Google) and Ram Shriram (Google investor)
VentureLab offers its participants networking possibilities and introductions to both angel investors and venture capitalists.