Angel investors and venture capitalists are individuals or firms which invest in relatively risky and unproven business ideas. While both work in the same way, differences exist between the two financial mechanisms.
Angel investors are those people who are leading a retired life but have the financial power to invest in a business. They will look for investment opportunities and provide the initial equity to a business. Venture capitalist usually follow suit. They may invest at the start but tend to weight up the business before deciding to put their monies on the line.
Venture capitalist therefore, is a term assigned to those corporate entities which entice large investors to pool in money for a profitable return in the future. As for an angel investor, he or she may be someone who has the individual financial power to fund a business.
The purpose for an angel investor to inject capital into a business may vary. Although his or her basic motive will be to gain substantial return but the decision to invest may not entirely depend upon the nature of the industry. They tend to get attracted by the whole prospect of investing in a relatively unknown business, with the aim of making it big. As for venture capitalists, they cater to high growth industries, those which can guarantee profitable returns.
However, the investment scale of an angel investor may not be as high as a venture capitalist’s, who has the ability to pool the investment of various wealthy businessmen. For this purpose, venture capitalists are bound to name a member on the board of the targeted company in order to keep a close eye on the running of the business.
Angel investors may not follow such a strict structure, despite investing substantial amounts. They are likely to be offered a board seat but may not take a keen interest in business operations.