BlogFinance
angel-investing-vs-venture-capital
December 16, 2022
-
7
min read
-
Written by: 
Nikolaus Hilgenfeldt
-
Category:
Finance

Angel Investing vs Venture Capital: Which Is Better for You?

So you just started your ecommerce business and wonder what's next. 

If you have ever considered getting money to grow your ecommerce business, there are different types of funding that are available to you.

You don't know whether to go with angel investing or venture capital. 

There is a lot of information on the internet, making it hard to decide which one is a better solution for you.

And there is no universal answer to it.

Do you even need one of them? 

Do both or some third one?

Allow us to help you.

In today’s article, we’ll get through the battle of angel investing vs venture capital, explore what each of those offers, and their pros and cons. 

Based on it, you’ll be able to choose a better one that fits you and your business better. 

Let's begin.

Angel Investing vs Venture Capital: What’s the Difference?

Angel Investing and Venture Capital are both types of funding in a company's early stage.

But which one is right for you? 

Read on.

What Is Angel Investing, and Why Should You Consider It?

Angel investing, also known as seed investing, is when an individual or group of individuals invest their own money into a business. 

It's typically considered the first round of financing for a new business or idea.

Angels are typically high-net-worth individuals who provide capital for early-stage companies in exchange for equity.

Those small businesses usually don't have access to traditional forms of financing. 

Besides taking an equity stake in the company, they usually become active members of its board. 

This can include helping source other investors, providing mentorship, and serving as an advocate for the business within their own networks.

Here’s how the angel investment process work:

the-angel-investment-process-graph

The term "angel" comes from the idea that individuals are taking up the role of a patron, or angel, to help jump-start businesses.

They are often former entrepreneurs or investors with a network of contacts in their industry or sector and experience with early-stage investing.

Angel investing involves high risks and high rewards, as investors put their money into start-ups and early-stage companies in hopes of gaining an outsized return on their investment.

Angel investors typically seek high returns from their investments but also want to see a social benefit, such as job creation or economic growth. 

What’s the Average Angel Investment?

Angel investors mostly concentrate on startups and early-stage businesses that require assistance with their first operations. 

These firms typically lack the track record needed to attract venture capitalists.

Therefore, they require funding to advance their product development, marketing, and sales efforts.

Angel investors often band together to commit between $100,000 and $1,000,000 in investments

On the other hand, there are also possible individual investments between $10,000 and $100,000 that can be used to fund businesses.

Angel Investing Pros

1. Good solution for early-stage businesses

The main benefit of angel investing is that it can help you start as an entrepreneur without quitting your job or taking on any financial risk. 

2. Learn from experienced entrepreneurs

You'll have the opportunity to learn from experienced entrepreneurs and gain valuable insight into the early stages of business development while earning a great return on investment!

3. Chance to grow your network

It's a great networking opportunity! If you meet successful entrepreneurs whom you can trust, they might introduce you to many other people in the industry who could provide valuable mentorship.

4. No monthly fees

Since angel investment is equity-based financing rather than a loan, the entrepreneur is free to use all of the borrowed funds to expand their business without paying monthly installments.

5. Minimal paperwork

Entrepreneurs don't need a lot of paperwork to close an angel investment because it is less formal and more flexible than VC funding. 

Angel Investing Cons

1. Angel investing is risky

Remember, too many startups fail even after receiving funding from angel investors — so don't think your business is automatically safe just because it's been invested by an experienced angel investor. 

2. They demand significant starting equity

The primary drawback of angel investors is that they frequently receive sizable ownership in your startup in exchange for their investment, which means you have less management authority over the company.

What Is Venture Capital?

Venture capital(VC) is a type of financing that investors provide to startups and small businesses with high growth potential. 

Venture capital generally comes in the form of equity financing, meaning that the investors provide the company with capital in exchange for an ownership stake in the business.

Venture capitalists typically invest in companies that are in their early stages of development, and they often work closely with the management team to help grow the business.

They often serve as boards of directors, helping to guide companies through key decisions about funding and strategy.

Here’s how the venture capital investment process goes:

VC investments are typically made in exchange for equity stakes in companies rather than debt or ownership shares like those acquired through IPOs or initial public offerings (IPOs).

What’s the Average Venture Capital Investment?

The median size of venture capital deals in 2020, as reported by Statista, was:

  • seed stage companies raised $1.2 million, 
  • early-stage companies raised $4.5 million,
  • as well as $9.9 million in later-stage companies.

Since various businesses expand at different rates, defining a business stage by years of operation is not very useful.

Venture Capital Pros

1. Provide Businesses With Larger Seed Investments

Venture capitalists can be your greatest source of funding if you require a sizable financial infusion to launch your business because they frequently make sizable investments in businesses.

2. Great Networking Opportunities

Your company has a number of extra advantages when you hire a venture capitalist, including access to the firm's experience, introductions to partners, other startup owners who have received money, and industry experts from both of their networks.

3. No Monthly Payments

Entrepreneurs have extra money to reinvest in their businesses since they don't have to pay a monthly payment or interest because venture capitalists invest in businesses in exchange for private equity.

4. Improved Risk Management

While formal reporting structures and boards of directors are required for VC funding, entrepreneurs can lessen the likelihood of making a costly error by having an experienced team to monitor their business growth and operations.

Venture Capital Cons

1. Giving Much More Control to Investors

The biggest disadvantage of venture capital is that it comes with many strings attached. You will be required to give up much control over your company, which can be extremely frustrating if you want to make changes or run things differently than your investors. 

2. Limited Accessibility

VC firms are not open to all entrepreneurs. Instead, they look for companies with a high probability of success based on their past performance and ability to demonstrate strong growth potential in sales revenues and profits. If your business does not fit this profile, it is unlikely that you will be able to obtain financing through venture capital channels.

3. High Expectations

Venture capitalists expect quick returns on their investments. It takes time for most startups to become profitable, so if your business doesn't generate revenue immediately, you could find yourself in trouble if venture capitalists start pressuring you to sell or close down before you're ready.

4. Venture Capitalists May Have Conflicting Interests With Yours

Venture capitalists invest in many different companies, so they usually look for ways to increase their returns by adding additional services or products that complement their investments — even if those services or products compete with those offered by their portfolio companies. This can lead them to push those companies into areas that aren't necessarily best suited.

Venture Capital vs Angel Investing

Angel investors typically invest their own money, unlike venture capitalists, who invest other people's money. 

Angel investors usually take a more hands-on approach than venture capitalists and often provide mentorship and advice to startup companies.

The most important difference between venture capital and angel investing is the amount of money involved.

Venture capitalists usually invest in companies that already have an established product or service in place. 

They're looking for companies with good growth potential that can scale quickly. 

They also look for companies led by experienced entrepreneurs who have demonstrated their ability to run successful businesses before.

Angel investing deals are typically much smaller than VC deals — $100k - $1 million vs. $2 million - $10 million+

Which Is Better for Your Business

There is no easy answer when it comes to deciding whether angel investing or venture capital is the better option for you. 

Both have their pros and cons, and ultimately, it will come down to your personal preferences and goals.

Venture capital may be the way to go if you're looking for a higher return on investment. 

However, you'll also be taking on more risk, as venture-backed startups are more likely to fail than those that are not. 

On the other hand, angel investing can provide you with a steadier stream of income.

There is also another option - asset-based financing that functions without you having to give any equity.

Asset-based finance enables online shops to leverage their inventory and free up operating capital to grow their operations.

That’s why we created Myos.

Myos is an asset-based finance provider that helps you accelerate growth. 

We hand out working capital loans over 10k£ - 2.5m£ with a monthly fee of 1-3% of the outstanding loan volume. 

Based on AI and Machine Learning, our algorithm allows us to evaluate the product data and determine the financing volume without requiring additional credit checks from you. 

On the other hand, we’re taking the product as collateral, eliminating all your personal risks and guarantees.

Ecommerce companies who partner with Myos can quickly apply in just minutes and have complete freedom to spend the secured cash for any purpose. 

The financing process goes into three steps:

1. Apply - Send a request for financing based on one or more top-selling products.

2. Get a payout - Negotiate with the supplier or simply use his inventory while Myos pays you or the supplier the financing amount.

3. Sell - A part of the goods directly goes into the sale. With first revenues, you’re flexible to pay back the first installment & receive new goods.

Here’s an example:

So, whatever your ecommerce store's cash needs, asset-based finance with Myos offers a rapid and low-risk solution to get capital. 

Get a free quote today and discover the benefits of a new, risk-free perspective for your business growth.

Also interesting

This is some text inside of a div block.