Companies need capital to start or grow. What kind of capital depends on whether you're looking for a loan or an equity investment. Investment is provided by angel investors, venture capitalists and sometimes by friends and family. While both angel investors and venture capitalists contribute money, they differ quite a bit in several areas.
The term angel investor is usually credited to Broadway, where "angels" would invest in plays and musicals to support the arts and also aim to make a profit. Angel investors, also called accredited investors, as defined by the U.S. Security and Exchange Commission, must meet certain net worth and income qualifications. Venture capitalists are employees, or partners, of structured investment companies. There are no mandated eligibility requirements, other than what the venture capital firm uses as hiring parameters.
Source of Funds
Angel investors invest their own money, while venture capitalists invest other people's money. The venture capital firm raises money from pension funds, insurance companies and other financial institutions. More than one venture capital firm may invest in the same company as a joint venture. Angels invest their own money individually, as a group or occasionally form a fund and the fund invests in the company.
Size of Investment
The average venture capital investment in any one company, at one time, is in the millions of dollars. As of the time of publication, the average investment was $7.7 million. Angel investors make much smaller investments of about $70,000 per investment, although they can go much higher.
Number of Investments
Only 3,600 companies received venture capital investment in the past 12 months, as of September 2012. The number of angel investor investments is more difficult to track, because there is no requirement, or benefit, for an angel investor to divulge how much money in what companies he's invested. The Center for Venture Research estimates that over 300,000 angels invested $22.5 billion in 66,000 companies.
Stage of Investment
Venture capitalists invest the majority of their money in later stage companies. Only 3 percent of the $27 billion venture capital funding were invested in early stage, start-up or seed companies. Angel investors invest in earlier stage companies, or start-ups.
Challenge to Find
Venture capitalists can be found through a number of methods. Most firms have websites which list the partners, their investment interests and what companies are in their investment portfolio. Contact information for both street and email addresses are readily available. The firms join organizations such as the National Venture Capital Association. Each member has contact information on those sites as well. The size, type, amount and specific company that received venture capital are tracked by firms such as PWC Moneytree. Angel investors are more elusive. Some join networks such as the Desert Angels in Arizona, but many remain independent and not associated with any network or group. Uncovering angels takes some sleuthing. Deals may be reported in newspapers or Business Journals. The Small Business Development Centers may know of local angel groups. Some websites list angel groups organized by state.
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