I’m often asked if a company should approach a Venture Capital or a Business Angel? What is the overlap between these institutions? And are these differences significant? Where should Business Angels place themselves on the continuum? What looks most attractive to a company searching for investment? This blog provides some generalised differences. Could this be part of the filtering process?
The key differences between these two groups are the size of the investment that they are likely to make and their motivation. Venture Capital organisations are unlikely to look at investment less than two million and will concentrate on the exit method and valuation.
Business Angels typically invest between £20K and £500K (with an average of £50K per angel per transaction) so a number of angels may be required in order to meet the funding requirements of the company. Managing a number of Business Angels is often compared to “herding cats” since their needs and interests may not all align with each other and the company. Business Angels reason for investing vary dramatically between individuals and investments; for example “want the badge”, “exit in eight years”, “philanthropy”, etc.
You may have spotted the funding gap from about £250K to £2000K. There may be Business Angels and Venture Capital that will step into this gap but companies seeking funds in this range will find it significantly more difficult. In the UK this is perceived as a “market failure” so the Regional Development Agencies have set up local Venture Capital organisations with the specific remit of providing funding in this space.
A quick summary of the differences between Business Angels and Venture Capital can be seen in the following table:
|Venture Capital||Business Angels|
|Quantum||£2,000K +||£20K – £500K total. Average Angel investment per company is £50K|
|Type||Loans and equity often with different classes.||Loans and equity (for EIS relief).|
|Deal Costs||£5K – £50K+||£3K. Business Angels typically do their own legal work.|
|Company Management Time||Significant time spent on due diligence on product, company, management team.||Medium per angel, but often many angels which (if there is no lead angel) may result in a significant time requirement.|
|Deal Time||Six months and upwards.||Approx three months but depends upon number of angels.|
|Process||Defined methodology based on remit of fund/trust.||Dependant on individual BA, group require management by investee if there’s no lead investor.|
|Sources of Leads||VC directories, web searches.||Angel networks, local networking with professionals and other companies.|
|Motivation||Significant return on exit within five years.||Philanthropic & return on exit within eight years.|
|Success Measurement||Reported to fund holders (may be public).||Individual criteria (usually private).|
You will find many other pages on this website that will help you find funding – for example:
- How to find investment
- 13 Ways to be More Investible
- 8 Ways to Lose Investors
Should you have any more questions about finding investment, please call me or drop me an email using the Contact Us page.