Angel Investors vs Venture Capitalists

Last Updated at: September 30, 2019

Venture capitalists and angel investors are two essential components of any startup funding business. When startup business requires financial help, the angel investors invest their own money in the company. They offer money at an early formation in exchange for convertible equity or debt. On the contrary, venture capitalists also play a crucial role in providing financial support to companies.

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As an entrepreneur, you will come across many new terms while deciding how to fund your business. The ‘hot’ way to raise money nowadays, particularly if you’re idea is new, is to raise funds from VCs or angels in exchange for equity. But how do these companies or individuals differ from each other? Let’s find out:

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Who they are: Angel investors are high net worth individuals keen on investing in new startup businesses. Typically, they will be part of the start-up ecosystem working a regular job or running a venture. Venture Capitalists (VCs), on the other hand, are professionals working with a firm that deploys funds it raises from HNIs and others.

Timing of investment: Angels are typically the first investor offering seed capital to a company. They are less likely to participate in future rounds. VCs, on the other hand, are more likely to participate in companies looking for larger sums.

Due Diligence: Angels work on their own or as part of a team of angels. They don’t have professional help and may not be experienced in all aspects of business. For this reason, they may not be very thorough while making their investment. VCs, on the other hand, may spend a lot of money doing an audit of your company, given that they have to answer to partners in their firm.

Board Involvement: Angels will always have a seat on the board initially; if they have invested as a group, one of them will take this seat. However, once a VC invests, the angel may retire from the board entirely.

Expectation of Returns: Angels and VCs are both major risk takers in that the majority of the businesses they invest in are likely to fail early on. For this reason, the investments that deliver are expected to give high returns (typically 10x or more).

When beginning a startup, you should know which one you should turn up when raising funds for your company. Whether you need angel investors or venture capitalists depends on the type of business you want to commence. Venture capitalists are employees that take money from people and invest them in companies.