In a world full of emerging technologies, a new tech-based business can face many challenges. These technologies provide both resources to be utilized and problems to be solved. One problem that all new tech businesses face though is how to get the money to fund the research and experimentation required to ensure that the business survives its early stages of development. Here we will discuss whether angel investors vs venture capitalists are the better choice to pursue for investment at a given stage in the growth of a business.
What is an Angel Investor?
An angel investor is conceptually similar to a patron of the arts, in that they are often investing with their focus on helping a company with merit get afloat or keep afloat. An angel investor is usually looking to make a profit from their investment, but they may take that profit as a longer-term return that the company they are supporting will be better suited to pay back and which will put them under less pressure in the shorter term. By deferring profitability on the investment, an angel investor can improve the chances of the company they are investing in having the short to medium-term funds that they need to become a success. The angel investor may be more influenced by the direction the company is planning on taking with their business than with a high degree of proof that the business will produce a large payoff, but they will still expect some indicators that the business is genuine.
What is a Venture Capitalist?
A venture capitalist is an investor who is looking for riskier investments that show signs of having a large long-term payoff. They generally focus on investment into new technologies that have the potential to be taken up by the market they are targeted at with a high growth curve. Venture capitalism is usually hit-driven, so this type of investor may be prepared to invest in businesses that are less proven in the hope that some of these businesses will succeed and provide the profit to cover any failed investments. For this type of investment to work the investor needs a decent amount of information to work with, however, so the central ideas of the business should have some practical proof behind them.
How do you decide which is better for your project?
When deciding whether angel investors vs venture capitalists are better for your business, you first need to take an objective look at how these different types of investors will perceive that business in its current state. Each new business has a growth pattern that emerges over time. An early-stage business will be a riskier proposition for an investor but may have original ideas and resources with sufficient merit that may indicate a long-term payoff that makes that risky investment worthwhile. At a slightly later stage, the business may show more signs that its initial promise has the potential to be realized and may be more appealing to a different type of investor.
If your business has merit that an angel investor will likely consider worth investing in then the earlier stages of your business can be a good time to pursue this type of investor. If the business is at a later stage where its central ideas are more proven, then a venture capitalist investor might be a good choice to focus on. And if your business appears to lack the merit to appeal to either of these types of investors at its current stage of maturity then it is probably time to reassess the direction you are taking with the business.
So, seeking out investment from angel investors vs venture capitalists is a choice that is largely influenced by the stage that a business is at and the direction that the business is taking. An early-stage business with a direction that evokes some degree of positive emotion in an investor may be best to seek out angel investors for funding. An early to medium stage business that has a direction that shows potential for exponential growth over the long term may be better suited to a venture capitalist. The main thing is to be honest with yourself about the current state of your business and the value in the direction that you are taking so that you can effectively pitch those attributes to the type of investor that you are trying to appeal to.
