There are over 32.5 million small businesses in the US. They make up 99.9% of all American businesses. Funding of around $30,000 is enough for them to get started. It varies widely based on the different types of business, ranging from $5,000 for home-based start-ups to $500,000 for restaurants.
Over 595,000 businesses close every year. Failing to secure crucial funding is a primary reason. The only option is to look to outside sources, but loans aren’t the only option.
Read our comparison guide to angel investing vs venture capital.
What’s an Angel Investor?
Angel investors are individuals or groups. They invest their own money into a startup in exchange for equity in it. They may or not be accredited but must meet one of two requirements by the SEC U.S. Securities and Exchange Commission to be called an angel investor. They must either have earned $200,000 per year for the past two years or have a total net worth of at least $1 million.
What’s a Venture Capitalist?
Venture capitalists are individuals or groups who invest money into a business on behalf of other individuals or groups. Sources include investment companies, large corporations, or pensions.
They’ll invest in a business with growth potential. In exchange, they get sway into how the business is operated from day to day. They can also buy the company or their shares or even sell their equity.
Angel Investing vs. Venture Capital
If you’re interested in the different types of capital contributions, you can learn more at debruinlawfirm.com. You’ll have to do a bit of soul-searching and pitching to find an investor that’s right for your business.
Both angel investing and venture capital let you work with experienced individuals. They have networks you can tap into to grow your business. They’re also less risky business funding options because most don’t require you to repay them if you fail.
An angel investor is best for an early-stage startup with a promising idea. Pitching to them is like being on an episode of Shark Tank. Venture capitalists prefer more developed companies with a proven track record. They want to see numbers and financial projections that prove their investment in your business is worth it.
Angel investors don’t invest as much money. It may not be enough at first, but they’ll stay with you over the long term. This could help you get through rough patches later.
Venture capitalists perform their due diligence and check if your business is meeting their partners’ goals. If it’s not, they may withdraw their investment.
More Business Growth Tips
Comparing angel investing vs venture capital can be important for new businesses. The money they provide can be the difference between failing in the first few years or succeeding. Each method has its pros and cons.
Angel investors use their own money to fund your business. They’re interested in helping new start-ups with fresh ideas. Venture capitalists manage the money of other individuals or groups. They want proof that putting it towards your business will turn a profit.