When you begin and expand a new company, you need cash. While you can slowly build up that business by using your own savings & resources, at some point you’ll need more money to grow quicker. This is where angel investors and venture capitalists can lend a helping hand.

Angel investors and venture capital firms basically provide money to fund new businesses and startups. But there are some important differences between the two sources of funding.

The main differences between angel investors and venture capitalists

1. Amount of Investment:

Angel investors are wealthy individuals who provide startups with money in the early stages. They usually invest smaller amounts, like seed funding, to help startups get off the ground.

Venture capital firms are different. They collect money from multiple investors to finance growing startups. They tend to invest much larger sums of money.

Venture capitalists target companies that have shown some success already and need money to ramp up and grow their business. But angels target startups just getting started that need modest amounts to prove their concept.

2. Level of Involvement:

Next is the level of involvement of Angel investors & VCs in your company. Now in this, Angel investors often mentor entrepreneurs and provide advice.

Now they may be entrepreneurs themselves and now they are willing to share their knowledge & experience with others. Venture capitalists are typically focused more on the financial return on their larger investments.

They usually don’t get as hands-on or involved in the daily operations of the companies they invest in. Their main focus is seeing a return through an IPO, acquisition, or company sale so they can generate profit for their investors.

3. Motivation:

Angel investors and venture capitalists have different reasons for investing. Angel investors want to help entrepreneurs succeed and also make a good return on their investment.

They may have been in the same position and want to help others achieve their dreams. Venture capitalists primarily want to make a good financial return.

They look for companies that can grow quickly and make them a lot of money.

Choosing Between Angel Investors and Venture Capitalists

If you’re just getting started and need a smaller amount of capital but could really benefit from the expertise, guidance, and connections of an experienced entrepreneur, an angel investor may be a better fit. Angel investors often want to be more hands-on mentors and advisers.

Venture capitalists may be a better option if your startup has already gained some traction and you need a substantial cash infusion to scale up and grow rapidly.

They’ll provide the large investment but will likely take a more hands-off, oversight role focused on monitoring their investment and eventual return.

Finding Angel Investors and Venture Capitalists

There are a few main ways to find investors for your startup:

• Attend events like meetups, forums, and competitions focused on startups seeking funding. These give you a chance to personally pitch investors.
• Search online databases like Crunchbase, AngelList, and PitchBook. Find investors that match your needs and contact them directly.
• Leverage your network. Ask friends, family, and business contacts if they know any relevant investors. Referrals significantly increase your chances.
• Be proactive and persistent. Reach out directly to as many investors as you can. Follow up consistently but respectfully.

Other than that you can also use Foundercrate to manage and streamline your fundraising process.

Foundercrate helps startups manage the complex fundraising process. Its cloud-based software suite includes tools that streamline fundraising, communications with investors, and managing investor relationships. In this, you got the features like an investor CRM, a fundraising dashboard, and an investor database with over 200,000 contacts.

The more investors you pitch your startup to, the higher your chances of securing funds. So get networking!

Preparing for an Investment Meeting

Here are some key things to do before meeting with an angel investor or venture capitalist:

1. Research the investor thoroughly. Learn about the companies and industries they have funded in the past. Tailor your pitch and business plan to match their investment focus.
2. Prepare a clear, concise business plan. It should summarize your company’s mission, product or service, target market, strategies, financials, and goals. You want to convey the big picture clearly in 15-20 minutes.
3. Anticipate tough questions and rehearse your answers. Investors will likely scrutinize your business model, competition, growth potential, exit plans, and more. Have succinct, well-explained responses ready.
4. Limit jargon and acronyms. Speak in simple, straightforward language that any investor can understand.
5. Avoid over-promising. Be realistic and honest about your startup’s potential risks, challenges, and needed next steps.
6. Have all relevant financial documents readily available. Things like revenue projections, expense forecasts, and previously raised funds. You may need to share these during the meeting.

Also Read:- Things to know before Raising funding from Venture Capital funds

Conclusion

Angel investors provide early funding for small startups & Venture capitalists fund established startups.

Both types of investors are important at different stages, with angel investors starting businesses and venture capitalists helping them scale. Though different, they aim to enable entrepreneurs to build impactful companies.