When it comes to raising funds for start-ups, two of the most commonly used types of investors are venture capitalists (VCs) and angel investors.
While both of these investors may provide financial support to start-ups, there are key differences between the two.
In venture capital, institutional investors pool their financial resources and expertise together to invest in firms.
In general, VCs invest larger sums, often over $1 million, and are known for being involved in decision-making processes. For example, Benchmark Capital, Uber’s largest investor, called for Travis Kalanick’s resignation in 2017 when Uber’s business struggled.
Additionally, VCs typically invest in successful start-ups that have already proven themselves. A good venture capitalist example would be Andreessen Horowitz’s investment in Airbnb back in 2011 when the company had a market value of $1.3 billion.
It is also common for VCs to invest with the expectation of getting a high return and to exit the investment when it is most profitable for them to do so.
After Zoom Video Communications went public in 2021, Sequoia Capital, the venture capital firm that had previously invested in the company, sold its stake for $1.3 billion!
There have been nearly 1,500 African investors involved in at least one deal in the past couple of years… excluding angels!
They are all contributing to the ecosystem’s growth, but some are just taking it to a whole new level.
Launch Africa Is on The Rise
Launch Africa led the pack in terms of deal count in 2021, and repeated that performance in 2022 as well.
In the last two years, they have been involved in 12% of equity deals between $100k and $10m on the continent, signing more than A DEAL A WEEK on average.
Following them are Flat6Labs, Y Combinator, and LoftyInc, all of which averaged more than three deals a month.
So, what are Angel Investors?
Angel Investors are typically individuals with high net worth who invest their own money in start-ups.
It is not uncommon for angel investors to invest in seed-stage start-ups, which means they invest at the very beginning of a company’s formation, and they often invest less money than venture capitalists.
As an example, let’s look at angel investor Peter Thiel. He invested $500,000 in Facebook in 2004 when it was only valued at $5 million. The difference is stark when compared to SoftBank’s $300 million venture capital investment in Wag.
Angel investors are also less involved in the decision-making processes of the companies they invest in. Despite investing in the meditation app Headspace, Tim Ferriss has not been actively involved in the company’s operations.
In summary, the key differences between venture capitalists and angel investors are the amount of money invested, the stage of startup at which they invest, and their involvement in the decision-making process of the companies they invest in.
Having a good understanding of these differences is incredibly helpful for start-ups seeking funding, as it will help you determine which type of investor will be a good match for your business.
Remember, the right investor can provide more than just financial support; they can also offer invaluable guidance and support to help grow your business.
Vusi Thembekwayo is a Global
Speaker, Author and Investor in the Future. Follow his regularly LinkedIn newsletter, “The Future of Everything”, by clicking here.