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Differences Between Venture Capital and Angel Investors

There are a number of types of funding sources available for entrepreneurs interested in business start up or expansion. As you consider the various types of investors that include angel investors, equity partners and venture capitalists, it’s important to also consider the business control issue. Angel investors, in particular, present a myriad of control possibilities because the ball is in their court when it comes to determining the amount of involvement.

The control issue is intricately tied to the expected success of the business to be funded. Most angels don’t want to run your business. They don’t want to be responsible for management of the business. They simply want to lend money with the high expectation that returns will be profitable. The decision concerning control will be included in the negotiated agreement.

Once you obtain business funding, it will be necessary to submit regular reports. This is how the investors determine the progress you are making towards your goals. The performance and financial reports will present snapshots of your business that will be compared to the business plan. The type and number of reports will also be included in the negotiated agreement. This applies to all investors of any kind whether its angel investors, banks or individuals giving business loans, equity partners and others. 1133 angel number

How Much Security Do You Offer?

No one loans money without expectation of repayment. It would be a gift if the money does not have to be repaid. The question is: How much control of the business management does the investor want until the negotiated agreement for earnings expires?

The up front assumption is that your business will succeed, but what are the risks it will fail? The answer to that question is one of risk. The more risk the business may not meet its goals, the more control investors will demand. That applies to angels, venture capitalists, equity partners and other types of investors.

Your carefully prepared business plan must be realistic. Investors who believe the business plan is built on false assumptions won’t lend money. The more realistic the plan, the less control the angel investors will believe is necessary. Though a written business plan is not a guarantee of success, it does provide the foundation for measuring progress toward goals.

Angel investors may be passive or active investors. Passive investing means the funders don’t have any say in the business management or will wait until asked before advising or mentoring. An active investor actually sits on the board of directors as a voting member or head of the board, or actually becomes the Chief Executive Officer of Chief Operating Officer.

A Degree of Control

Angel investment control can cover a full spectrum from little or no control to full management. However, most angel investors prefer investing, getting the expected returns on their investments, and letting you run your business. Angel investors are just that – investors.

 

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