Business Angels and venture capital - what's the difference?
Entrepreneurs who have original, innovative ideas for the development of the company and are looking for capital have a lot to choose from. One of the popular solutions in this area is the offer presented by business and venture capital angels. Before making a decision about choosing one of them, it is worth getting acquainted with their definition and the differences between them.
Who are business and venture capital angels?
A business angel - in Europe called a business angel, in the USA - an angel investor - is usually a private person. It provides the companies it takes care of with investment capital, but not only - the angel also has extensive substantive knowledge, experience and an extensive network of business contacts.These are very helpful resources for small businesses to get started.
Business angels are looking for companies with such an idea that guarantees profit in the future. Often, such people get involved in start-ups also out of their own passion, willingness to create something new and help with projects. Most often - but not always - these are people who have already "retired" in business, so they can pursue the topic that interests them.
On the other hand, venture capital funds are larger companies, capital market entities, which are part of the Private Equity sector. Compared to all other projects in this sector, they are distinguished by the fact that they invest in companies that are at the beginning of their careers, i.e. the most risky ones. Very often these are companies whose idea is innovative and the product or service is still not well known on the market.
Business and venture capital angels - what connects them?
Venture capital business angels share several characteristics. The first and foremost is actually the purpose of their existence. Both of these forms are addressed to enterprises that are just starting on the market and are at an early stage of development. Moreover, a company that has a chance to obtain aid from one of these sources must be - as already mentioned - innovative and promising for the future.
Another common feature of business angels and venture capital funds is the duration of their cooperation with the company under their care. Most often, such an agreement covers a period of three to seven years. After this time, when the company has a certain reputation on the market, it goes "out into the world". In such a situation, it is popular to introduce the company to the stock exchange, where its shares can be sold, or to be taken over by another fund from the Private Equity group.
In addition, business and venture capital angels share the way they manage the company they invest in. Most often they are the holders of a stake of shares, thanks to which they are not merely passive observers, but they can significantly influence the decision and direction of development of the company taken under the care of it.
Differences between business angels and venture vapital
Although business and venture capital angels are intended for the same audience, the ways in which they operate are not identical.
First of all, business angels act rather non-public, often hiding their identity. In Poland, their associations are the most popular, thanks to which the investor remains undisclosed. On the other hand, venture capital places in their portfolio any support they have provided. Thanks to this, they are perceived as partners worth concluding a contract with, reliable and trustworthy.
The second difference concerns the sources of the support capital. The business angel invests its own funds in the new company, so it really depends on his decision and the analysis he carries out which company he decides to support. On the other hand, venture capital draws resources from a fund established by investors. In this case, when the fund is faced with the choice of the company to be taken care of, a really in-depth analysis is necessary.
The last major difference is the size of the venture. Although - as mentioned earlier - both projects are aimed at starting entrepreneurs, in practice business angels deal with smaller companies. Although it is assumed that their minimum contribution is around 100,000. PLN, it is actually an individual businessman who is able to adapt to the possible needs of his younger partner. However, in the case of venture capital, for the investment to be profitable for investors, it should be worth at least about PLN 1 million. Otherwise, the in-depth analysis outlined in the previous point might not bring tangible benefits.
So, as you can see, business angels and venture capital are entities with a similar, but not identical, style of operation. Therefore, before making a decision about choosing one of these forms of financing, it is worth getting acquainted with their profile.