Key Differences Between Business Angels and Venture Capitalists (VCs)

If you’re seeking investment for your startup, you’ve probably come across two terms repeatedly: Business Angels and Venture Capitalists (VCs). While both invest in startups, their approaches, goals, and methods of operation differ significantly.

Understanding these differences is crucial for knowing how to approach them effectively. Here’s everything you need to know.

What Is a Business Angel?

Business Angels are individuals who invest their own money in startups, usually in the early stages. They can be experienced entrepreneurs, industry professionals, or high-net-worth individuals seeking to diversify their investments by supporting projects with growth potential.

Although Business Angels typically invest smaller amounts, they offer something invaluable: their expertise, knowledge, and network of industry contacts.

What Is a Venture Capitalist (VC)?

Venture Capitalists are investment firms that manage funds from third parties (such as banks, financial institutions, or pension funds) to invest in startups. Unlike Business Angels, VCs manage large sums of money and usually focus on startups that have already demonstrated some traction or success.

Their main goal is to generate significant returns for their investors, which means they are often more selective in their investment processes.

Main Differences Between Business Angels and VCs

1. Source of Funds

Business Angels: Invest their own capital.
VCs: Manage third-party funds and are responsible for generating returns for these investors.

2. Stage of Investment

Business Angels: Prefer investing in very early stages (pre-seed or seed), when startups are still validating their business models.
VCs: Focus on later-stage rounds (Series A and beyond), where the risk is lower, and growth metrics are evident.

3. Investment Amounts

Business Angels: Typically invest smaller amounts per startup, depending on their financial capacity and confidence in the project. For example, the Business Angel that has invested the most in one of my startups was €50,000 in Spain.
VCs: Invest significantly larger amounts, ranging from €100,000 to hundreds of millions, depending on the stage and size of the fund. Micro VCs, however, may start investing from €25,000.

4. Decision-Making Process

Business Angels: Decisions are quick and informal since they don’t need to answer to third parties.
VCs: Conduct thorough due diligence and require approval from investment committees.

5. Level of Involvement

Business Angels: Often actively involved in the startup, acting as mentors, opening doors, and providing strategic advice.
VCs: Provide strategic support but are generally less involved on a day-to-day basis. Some VCs only engage when they invest and may not actively participate until an exit or closure.

Conclusion

Business Angels and Venture Capitalists are essential players in the startup ecosystem, but their approaches and goals differ significantly. Knowing these differences allows you to focus your fundraising efforts on the right partners based on your growth stage.

If you need support in your fundraising journey, at Bolkana, we’re here to help you every step of the way. Apply to our program to simplify your fundraising and take your startup to the next level.