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Market Information

Angel Funding vs Venture Capital Explained

Thursday, September 20, 2018

Getting a start-up or early-stage business off the ground and operating efficiently often requires additional financial support or investment. This may bring to mind images of searching out potential investors, wining and dining investors, multiple presentations, boardroom meetings and copious amounts of time and money being expended. But in reality, sourcing external funding can involve investments as little as $10,000 or extend into the millions.

Two popular types of investment opportunities are Angel Funding (also known as Angel Investment) and Venture Capital. Here we explain the differences.

What is Angel Funding?

Angel Funding or Angel Investment occurs when individuals (commonly referred to as Business Angel Investors and usually high-net-worth investors) decide to invest their private funds in a business. Normally the business is in its early formation stage or seed stage.

Typically, Angel Investors invest because they believe in the viability, scalability and potential of the business. In return for their investment, they are given equity in the company.

In addition to funds, some Angel Investors also provide advice and guidance to the management team of the business – either on a non-paid or paid with small amount of equity basis.

What is Venture Capital?

Venture Capital is usually sourced by established businesses that require additional funds to grow or expand their operations – often through overseas expansion. Typically, a specialist Venture Capital firm will raise funds from professional investors such as superannuation funds, fund managers, family offices, high-wealth individuals, foundations and the like.

Venture Capitalists usually shy away from start-up or seed funding because of their lower threshold for risk. However, they are more likely to invest substantial sums of money than a typical Angel Investor.

According to KPMG, Venture Capital in Australia has recently reached a record high of US$630M in the 2017-2018 financial year.

What are the fundamental differences between Angel Funding and Venture Capital?
There are a few notable differences between Venture Capital and Angel Investment.

Angel Funding

 

Venture Capital

  • Lower investment of between $10,000 and $1M
  • Limited due diligence
  • Level of involvement in the business is up to the promoters and investor
  • There is less pressure to deliver immediate results
  • Can be arranged in a very short time
  • Higher threshold for risk
  • Often willing to invest in early start-up or seed stage as well as established businesses
 
  • Invest in amounts of $250,000 to $1M-$10M+
  • Full Due Diligence
  • Extensive involvement in the business including most likely board representation
  • There is pressure to perform to the agreed Business Plan quickly
  • Takes some time to set-up and finalise
  • Lower threshold for risk
  • Demonstrates little interest in investing in early stage or seed start-ups. Instead they prefer investing in late stage or established businesses.

In conclusion, Angel Funding will be the most likely source of investment for seed funding or early start-up businesses while Venture Capital is usually reserved for businesses demonstrating a proven track-record and substantial growth potential.

PrimaryMarkets is a global independent unlisted securities and investments platform and marketplace for sellers, buyers and intermediaries. If you are looking for unique Angel Funding or Venture Capital opportunities, contact us.

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