Monday, December 4, 2023

angel investors vs. capital owners


Angel investors and venture capitalists are two types of private investors that provide financing for early-stage and growth-stage companies. However, there are some major differences between them which we will cover in this article.

Who are angel investors?

High net worth individuals who invest in early stage companies in exchange for equity in the business are known as angel investors. They often invest their own money and take a more active approach to investing, providing advice and guidance to the companies they support. Popular angel investors in the crypto world include:

  • Roger Ver – Known as “Bitcoin Jesus” he is an early investor in Bitcoin (BTC) startups, such as, BitPay, and Kraken.
  • Barry Silbert – is the founder and CEO of the Digital Currency Group, which invests in and acquires cryptocurrency-related companies.
  • Naval Ravikant – He is a co-founder of AngelList and has invested in projects like MetaStable, Algorand, and others.
  • Charlie Lee – He is the creator of Litecoin and has invested in a number of other cryptocurrency related startups.

Who are the owners of capital?

Investors who fund startups and early-stage companies with plenty of room for growth are known as venture capitalists (VCs). They are often affiliated with a professional investment firm or fund and typically make larger investments than angel investors.

Related: Venture Capital Funding: A Beginner’s Guide to Cryptocurrency Venture Funding

They receive equity in the business in return for their investment, and often have a say in how the business is run. When the company eventually goes public or is acquired, venture investors hope to profit by selling their shares. Some well-known venture capital firms include:

  • Andreessen Horowitz
  • Blockchain Capital
  • Coinbase projects
  • Digital currency group
  • Polychain Capital
  • Pantera Capital.

Differences between angel investors and venture capitalists

investment stage

Angel investors often contribute seed money to startups by investing in early-stage businesses. On the other hand, venture capitalists frequently invest in later stage businesses which have already shown strong growth potential.

investment volume

Compared to venture capitalists, angel investors often invest less money. Unlike venture capitalists, who may invest millions of dollars in a company, angel investors often make investments between $10,000 and $100,000.

Engage in the company

Angel investors frequently adopt a hands-off strategy and do not actively participate in the company’s operations. On the contrary, venture capitalists frequently support the management of the businesses in which they invest, both strategically and operationally.

exit strategy

Angel investors often have a longer investment horizon and can withdraw their money through an initial public offering (IPO), merger, or acquisition. Conversely, venture investors often want to sell their investment within five to seven years through an IPO or acquisition.

source of funds

High net worth individuals who invest their money are angel investors. On the other hand, venture capitalists oversee the money of high net worth individuals or institutional investors and use that money for investing.

Take risks

Funded investors are generally more willing to take on higher levels of risk than venture capitalists who focus more on reducing risk.

investment criteria

Angel investors may be more flexible in their investment criteria, while venture capitalists have stricter standards and require companies to achieve specific goals and objectives.

Portfolio diversification

Angel investors tend to have a more diversified portfolio, while venture capitalists may have a more focused portfolio with a focus on a particular industry or sector.

Weaknesses of angel investing vs. investment capital

The above differences highlight the approach and priorities of angel investors and venture capitalists in the cryptocurrency industry. Both have their own weaknesses, and startups may choose to work with both depending on their specific needs and goals.

Weaknesses in angel investments include:

  • Limited Funds: Angel investors often invest less money than venture capitalists, which can restrict the size of companies they may support.
  • Lack of Due Diligence: When making investment decisions, angel investors may rely too much on instinct and personal relationships, which can increase the chance of failure.
  • Long-term commitment: Angel investments are typically made for the long term and may not provide an exit option for the investor or startup.

Venture capital weaknesses include:

  • High Expectations: Venture investors often have high standards for companies and may require them to achieve certain standards and goals.
  • Short-term focus: Venture capitalists are frequently pushed to realize their investments within a specific time frame and often have a specific exit strategy.
  • Control: Venture capitalists may have little power to influence important decisions in the companies they fund.

Regardless of the above shortcomings, the process of securing funding from investors can help validate a startup’s business model and increase its visibility in the market.