Do I Need An Angel Investor Or A Venture Capitalist?

Academics from the University of Maryland School Of Business has written a report into the nature of small-business funding and if Angel Investment, Venture Capital or a combination of the two is the most effective route to secure early-stage funding. Here we take a look at the report and comment on its findings. The report studies 182 equity fundings in the US and compared the outcomes of these fundings given the nature of each liquidity event. There were some good, broad conclusions which could be of use when deciding to search for Angel Investment or Venture Capital: Firms which seek relatively small amounts of early-stage funding do so with Angel Investment, Venture Capital funding or a combination of both. The average Angel Investment is approximately £75,000.

However, when large investments are needed, VC involvement is generally a required condition.
Angel Investors almost always take preferred shares, however, even if Venture Capital is involved, Angel Investment is traditionally associated with weaker cash flow control and less stringent control rights, regardless of the deal size.

This, however, is not true in every event; the nature of investor control is dependent on the composition of each deal.

With smaller deals there is a lower incidence of failure when Angels invest without Venture Capital

When there are large deals, the success rate is greater when Venture Capitalists are operating without Angel Investors.

The assertion of the report is that the search costs of finding an Angel Investor prohibits entrepreneurs from seeking more than modest levels of funding. However, we have seen at Angels Den [link] where the costs of attracting Angel Investor interest are limited to £499+VAT, that this assertion is not necessarily true in the UK.

The report suggests that Angel Investors could be more patient than Venture Capitalists as they relinquish more control so that the organisation has a longer period to become profitable.

It is also suggested that entrepreneurs that need greater patience, exhibit greater managerial expertise, or greater control typically perform best with Angel Investors. Whilst entrepreneurs that require greater managerial input, or have the business need for much faster growth typical select venture capital.

It would appear that choosing Angel Investment or Venture Capital for smaller funding requirements does not depend solely on financial requirements, however business processes and management and marketing needs may determine whether an entrepreneur would be suited to Angel Investment.

To discuss how Angels Den [Link] can reduce the time and cost of receiving Angel Investment funding then drop us a line.