People often believe that business angels, venture capital and private equity are all one and the same. But there are important differences to know about.
Firstly let's make sure what is understood by that last term. Private equity is simply shares (equity or securities) in a company that is not listed on the stock market. This term has also been used to describe the broader group of firms that are operating as private equity owners of companies.
Both Angel Investors and Venture Capitalists will hold private equity from having made investments directly into private companies.
However Business Angel Investors will be individuals, often successful business people, who are investing their own personal funds into a potentially rewarding business opportunity. Whereas Venture Capital is invested by firms or companies that use other people's money. They raise that money by offering investors a chance to take part in a fund that is then used to buy shares in a private company.
The fact that business angels are using their own money and venture capitalists are using other people's affects their capacity for risk and of course an individual angel investor doesn't have as much to invest as a venture capital firm. The main characteristics of each are:
Business Angel Investor
- An individual investor
- May be willing to invest in early-stage or start-up businesses, as well as established companies
- Investment amounts: £10k - £100k, sometimes a bit more, groups could go up to £1m
- Have experience and contacts to contribute
- May be willing to be "hands-off" or "hands-on" adding important skills
- A company or business rather than an individual
- Seldom interested in early-stage, unless compelling reasons (eg. high tech with already successful founders)
- Investment amounts: £1M +
- Have contacts
- Require seat on board
Generally if the business is at an early stage then Business Angels are the most likely source of funding. Venture Capital firms may come on board at a later stage when the concept is proven and initial revenues obtained in order to more quickly expand the company.