Choosing between a business angel or venture capital fund
- Alicia Heeger
- How to
- 13 December 2022
- Edited 12 January 2024
- 1 min
- Managing and growing
- Finance
You need money for a major modification of your business. For pay for this, you are looking for an investor. The amount you need is between €50,000 and €750,000. In addition to the money, you also want to use the investor's knowledge and network. Then a business angel might be interesting for you. Or will you go for a venture capital fund? Here you can read about the differences so you can make a choice.
Business angel
Characteristics
Business angels are private or informal investors, often former entrepreneurs. They invest a business amount between €50,000 and €750,000 in your business. They are interested in promising and fast-growing businesses in the start and growth phase. The investor supports you with knowledge and experience. You get access to the investor's network. In return, the business angel usually asks for a shares in your business. The investor wants to have a say in your business and stay informed. So you gain a business partner in your company. That is why it is important that it clicks between you.
This is how a business angel will look at your plan
When a business angel looks at your plans, they will pay attention to the following:
- Do I get a good feeling about the plans?
- Is the entrepreneur investing his own money in the plans?
- Does the entrepreneur show that they run the business with heart and soul?
- How are the shares split between the entrepreneur and the investor?
- What is stated in the (short) shareholder agreement?
- Are the terms a bit flexible?
Venture capital fund
Characteristics
A venture capital fund is an investment fund that focuses on high-risk investments in innovative or fast-growing businesses. A fund manager manages the fund. They ensure investments in promising projects. You apply to the fund. You can do so from about €200,000 but usually the amount is higher. The amount is always against a percentage of shares. The fund wants to earn returns for the shareholders in the fund. The shareholders want to increase the value of the shares they have in your business. After a few years, the fund sells those shares again. That is called an exit. Venture capital funds start investing where business angels' investment stops.
This is how the fund looks at your plan
The fund manager in a venture capital fund wants:
- an extensive review of your administration, your books
- use of mainly other people's money
- a professional team
- preferred shares in the company
- a comprehensive shareholder agreement
- strict conditions
Choose
You will need to choose which of these 2 investor types best suits your business, your plans, and the amount you need. In addition, you pay attention to the working methods of both investors. Which working method best suits your way of working? And what does your business need? Order your wants and needs and their offer. Does your preference lie with the business angel connection and advice? Or do you want a well-known investor who also wants to cash in quickly? Keep in mind that a private investor always wants your time and attention.
In practice, business angels help your business on its way to an early start. They use more flexible terms and control. Is this successful? Then a venture capital fund can scale up your business further. But with stricter conditions and tougher return guarantees.
