Angel Investors and Venture Capitalists:  What is the Difference?

Angels are generally successful entrepreneurs who have made enough money to support new business ventures with capital and often mentorship and guidance.  Venture capitalists (VC's) are professional managers, generally MBA-types who understand investing. Return on investment (ROI) is a VC's primary motivation.  The lines between these two groups once were well defined.  Now they have begun to blur but here are a few of the traditional differences:

Angel Investors

Venture Capitalists

• Usual funding - $25,000 to $1,500,000

• Usual funding - $500,000 and up

• Prefer anonymity reachable by referrals or by Angel groups

• Highly visible, usually look only at business plans referred to them by their network of contacts.

• Due diligence relatively quick and light

• Due diligence relatively slow, detailed and methodical

• Normally provide operational experience, common sense advice, and specific industry expertise

• Experience in managing growth – deep pockets, network of additional sources of capital, extensive network, experience in managing IPO and sale exits

• Target exit time is 5 to 7 years

• Target exit time is 3 to 5 years

• Target internal rate of return (IRR) is 15% to 25%

• Target IRR is 20% to 40%