Angel investors and venture capital providers are similar in that they invest in growth businesses in return for an ownership stake in the company and a degree of involvement and control. They do, however, differ in certain respects, which a company must understand in order to maximize chances of success and minimize time and resources invested in raising capital.

• Source of Funds: Angel investors, acting alone or in organized groups, are usually wealthy individuals, often with a successful entrepreneurial record, who invest their own money. Venture capital funds are corporate entities that pool money from a range of institutional and individual investors.
• Deal Size: The range of angel investor transactions is typically US$25,000 to US$100,000 for an individual, and up to US$1 million, or more, when acting in a group. The range of venture capital transactions is large, from around US$500,000 to US$10 million, or above. Venture capital may provide second round financing after angel investors.
• Stage of Development: The focus of angel investors is typically earlier stage businesses. Different venture capital firms focus on different stages of business development, but the unifying criteria is that they seek high growth companies capable of achieving exit strategies that meet the fund’s return criteria within a specified time frame.
• Industry and Geographic Focus: There is no set of industry or geographic markets that dominate in terms of attracting funding. However, venture capital providers frequently concentrate on high-growth sectors, often associated with technology or innovation. Angel investors may allocate funds to a range of ventures, frequently tied with their areas of expertise. In both cases they often prefer to invest within the vicinity of their offices to add management value and monitor portfolio companies.
• Ease of Obtaining Financing: Through local resources, networking, internet searches, and references from existing contacts, angel investors may be relatively easy to identify. The difficulty may arise at the negotiation stage if the business requires funding from several investors who demand different terms. Obtaining venture capital funding is a highly rigorous process and a firm must first meet all the investment criteria of a firm before consideration. A firm must then be prepared for a lengthy due diligence, valuation and negotiation process.
• Cost: Early-stage and growth businesses generally involve higher levels of risk and investors will seek a commensurate return. The cost of capital for private equity is high, translating into a high level of equity required in return for the invested funds. There is no consensus difference between angel investors and venture capital, although stereotypically, a venture capital provider may have higher return expectations and more defined criteria.

The key message for a company is to be realistic in its goals. If a business is at an earlier stage, or growth prospects are currently modest, then angel financing may be the best option. If, however, the business has an established record, or is at an early stage but offers an exceptionally compelling opportunity with an outstanding management team, then pursuing venture capital may be viable.