Types of Investors

Difference between angels and VCs

An angel investor or angel is a typically an affluent individual who provides capital for a business startup, usually in exchange for convertible debt or preferred stock. Some angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

Angel investors are often retired or serial entrepreneurs or executives who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis. Thus, in addition to funds, angel investors can often provide valuable management advice and important contacts. Private companies meet angel investors in any number of ways, including referrals from trusted sources and other business contacts; at investor conferences and symposia; and at meetings organized by groups of angels where companies pitch directly to investors in face-to-face meetings.

Angels typically invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally managed fund. Angel capital often fills the gap in startup financing between “friends and family” who provide seed funding—and formal venture capital. Although it is usually difficult to raise more than a few hundred thousand dollars from friends and family, most traditional venture capital funds are usually not able to make or evaluate small investments under $1-2 million. Thus, angel investment is a common source of early financing for startups and early stage companies.